In times of stock market uncertainty and volatility, many investors have a tendency to crawl into a bunker and wait for the storm to pass.
This is a blunder for even the most cautious and conservative investor.
Why? Because the best time to scoop up steady investments at bargain prices is when markets are unsettled.
My advice to hesitant investors is to start with the basics – and nothing is more basic than food and water.
Why Invest in Water?
Water is a hot button issue all over the world.
Many of the sharpest minds believe that water is the most undervalued commodity.
Despite the fact that two-thirds of the Earth is covered in water, only 2% is fit for human consumption. This leaves over 780 million, worldwide, without access to drinkable water, according to the World Health Organization.
The fresh water under China’s breadbasket – which harvests half of the country’s wheat and a third of its corn crop – is rapidly depleting.
Brisbane, Australia recently came within six months of completely running out of water. And Sao Paulo, Brazil is worried it will face a dire water shortage during the upcoming Olympic games.
Closer to home, California is suffering through a drought of historic proportions that could cost its farmers nearly $3 billion this year, alone.
And it’s not just California – water managers in 36 U.S. states expect severe water shortages in the near future.
Lake Mead’s capacity has dropped by more than 5.6 trillion gallons, and the Colorado River Basin has lost 17 trillion gallons of water over the last decade.
This is scary stuff.
Meanwhile, in much of the world, we take an inexpensive and steady supply of water as a birthright. But this simply isn’t the case in most places.
For example, more than 40% of Jakarta’s 11 million residents don’t have running water.
In many countries, the situation is even worse. Waterborne diseases lead to the loss of 5,000 lives each day – many of the victims being under the age of five. This is truly a tragedy.
How H2O Is Changing
A major challenge is that the water infrastructure is becoming outdated. For instance, municipal water pipes are disintegrating more rapidly than ever. This is leading to serious health consequences, not to mention it’s draining revenue away from water districts already strapped for capital.
Based in my hometown of Milwaukee, Rexnord Corp. (RXN) is a company that designs, manufactures, and markets water control and management products worldwide.
There are a number of factors driving the growth and profits of this company, such as municipal rate hikes, housing starts, and the repair of aging water systems.
Analysts forecast that Rexnord earnings will rise 19% in the fiscal year that ends next March and 16% the following year.
What About Food?
While overall inflation has been muted, food prices have jumped 68% in the last five years.
This, in spite of the fact that America is the most productive agricultural country in the world, due to our technological advances and large-scale farms.
On the whole, Americans feel entitled to a steady supply of high-quality food at reasonable prices.
But, as with water, most of the world isn’t so lucky – especially emerging market countries, which account for 83% of the world’s population.
Food represents 14% of our consumer spending, but in emerging market countries, it ranges between 30% and 70%.
In India, where 75% of the population lives on $2 a day and 40% of children are malnourished, 44% of income is spent on food.
This raises an important concern: What about the future?
Our planet’s population recently exceeded seven billion, and that number grows by 200,000 people per day.
By 2050, the planet is expected to hit the nine billion mark.
Adding to the pressure on prices is the rise of the global middle class, which is expected to grow from 2.6 billion to 5.1 billion in 2020.
To meet this growing demand, the World Bank estimates that farms all over the world will have to produce 50% more food by 2030, and more food in the next 50 years than it did in the last 10,000 years.
Investing in Nourishment
It’s much easier to capture the growth of food than water.
In a previous column, I suggested Hormel Foods Corp. (HRL), which is up 22% in the last three months.
Hormel has roots back to the 19th century with double-digit sales, profit, and earnings growth over the last decade, not to mention almost 50 years of consecutive dividend growth. Plus, international sales have tripled since 2005, and its top 30 brands regularly garner either the No. 1 or No. 2 spot in world markets.
Furthermore, if we can get the Trans-Pacific Partnership trade deal enacted, Hormel should be a major beneficiary, as it would gain access to new markets, such as Vietnam.
Brazil’s stock market and currency improvement leads to another great food investment – Brasil Foods S.A. (BRFS).
This multinational is a market leader in meats and dairy with two-thirds of its sales in Brazil.
Brasil Foods is the world’s largest poultry exporter, Brazil’s largest maker of frozen microwave dinners and meats, and distributes supplies to McDonald’s, Pizza Hut and Burger King restaurants.
Stock in Brasil Foods offers a return on equity of 20% and, in its latest quarter, posted earnings up to 39% on an 11% increase in revenue. Based on projected forward earnings, it’s very cheap, trading at just four times earnings.
Pair either or both of these food production companies with the game-changing Rexnord, and watch your portfolio grow.
Stick to the basics to see great returns.
Carl T. Delfeld