Non-meat proteins - food for thought?

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There are a few ASX equities which are exposed to the agricultural sector. An issue that has caught my eye is the question of antibiotic use in livestock. Judging by this article in the NY Times, you might wonder what is the implication of increasing bacterial resistance to antibiotics used in farm animals. It is an interesting dilemma in terms of its future outcomes, and these of course have implications for investors, whether you are:

1. A farmer with a multi-million dollar investment in livestock raising assets

2. A passive investor interested in, or holding stock in Australian Agricultural Company (ASX:AAC).

There are two counterfactuals here:

1. The prospect of increasingly resistant bacterial counts in livestock turning people off meat

2. The prospect of bacterial resistance turning people off imported meats

3. The prospect of non-US farm assets becoming more valuable because they do not use antibiotics in farm animals, or because they are more sensible with respect to dosage.

I personally don't know enough about the topic to say more....just its interesting. Feedback is welcome. I wonder if it will make these farm assets more valuable outside the US; but I suspect, consumer suspicion and paranoia might in fact result in consumers dropping meat altogether. Of course, you will have no problem if you simply ensure you cook your meat well.

For the investor, perhaps the safest investment strategy is to invest in non-animal forms of protein, as these are surely to benefit from the oncoming scandal. Lentils anyone? Who grows these? I came up with a few plausible investments:

1. Alliance Grain Traders [AGT:TSX] - This is a stock with a longer equity market history, and it appears to be a good timing for an entry in this stock, since the stock is at a 2-year low, and the PE ratio is a reasonable 12x earnings. You can follow this stock at Google Finance, however you will want to look at its earnings outlook. Having said that, the earnings per share of $1.09, or earnings yield of $1.09/$19.51 = 5.5% is not overwhelming for a $500mil stock. The question is whether its a turn-around story? Download the latest presentation (Nov 2011).

2. Legumex Walker [LWP:TSX] - see this company presentation. I've not researched this stock much, but it appears to be a new listing or equity enterprise, so you might want to follow it to find a technical entry point on the chart.

These are both Canadian-listed companies. The appeal of lentils, as a source of protein, is that they use less water, and of course don't entail the same exposure to meat-born bacterial (i.e. staf) infections.

3. Viterra Ltd - part of the larger Canadian group - see Google Finance and their website.

The nice aspect of these stocks is that they are tangible commodities and Asia is not meeting its own requirements; and there is clearly the prospect of a shift to greater edible 'non-meat' proteins, and this could see greater profit margins for these companies. This trends could be surprisingly quick if there is a 'scandalised' US beef industry. There is plausibly the prospect of higher profit margins from greater global consolidation of these businesses. I already see this happening with these two players. Are these enterprises the consolidators or the target? It probably does not matter....as long as they stay trading at appealing earnings multiples.

If you want further research on 'pulse' crops - see this website. There seems to be a great deal of upside for consolidation in the Australian pulse market, as I could not find listed producers, so expect these Canadian players to step in to do that.

Japan Foreclosed Guide Profiting from the Gold Boom Mining Fundamentals eBook

Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Press release by Adamus Resources (ADU.ASX)

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Adamus Resources (ADU.ASX) has just released an announcement highlighting its developments in Africa. I find this company a good example of the type of stock to buy for the reasons alluded to. The other reason is perhaps the diversification of risk; and the prospect of higher grade ore being found as well as the inevitable addition to resources when you have so much exploration area to test. Watch those drill results! The stock is up today on this announcement.

Japan Foreclosed Guide Profiting from the Gold Boom Mining Fundamentals eBook

Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Interest returns to the gold stocks

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Its been some time since I posted some news on speculative mining stocks. The reason is that I see little appeal in exploration stocks at the moment for several reasons:

1. The lack of appetite for risk

2. The lack of capital for risk, i.e. the difficulty raising money, i.e. Base Metals Ltd

3. The difficulty for non-gold projects given the worrisome outlook for commodity demand

4. The development lead time for projects

One of course can find stocks which one likes like MIL Resources (MGK.ASX), however without a rapid development schedule or adequate funding, then the market will pass them by. Recognising the slow pace of exploration or gold conversion by MGK, I decided to sell this stock 2 months ago. The concern is that even when they release results, the market will say - these results are good, but what about the spectre of another cash raising. When the company is not going to have an operating mine for 3 years, then its looking too long term, and of course in a recession, they will be looking at share price debasement with each successive cash raising. The alternate picture of course is that they are able to attract funding from one of the majors. They have been passed over by a major Chinese company, but that company was probably interested in the iron ore project. The gold side is promising, but sadly not in this commodity cycle.

In this last week, I have been drawn back to an old favourite stock - Adamus Resources (ADU.ASX), which is merging with a Canadian mining stock Endeavour Mining Corp (EDV.TSE). Adamus Resources is a small miner with the capacity to add resources to its existing mine, as well as to scale up its existing plant given the prospect of promising exploration results.

Japan Foreclosed Guide Profiting from the Gold Boom Mining Fundamentals eBook

Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com