This from The Rude Awakening:

Demand for food never wavers, even when times are tough. This fact is only one of the reasons to like Viterra (TSE:VT), a Canadian agri-business company. Viterra, an amalgamation of “vital” and “terra,” meaning “life from the land,” is the new name for a very old business new. The old name, Saskatchewan Wheat Pool, better reflects the company’s raison d’etre.

Viterra is in the grain-moving, storing, processing and cleaning business. You would think, based on the recent sell-off, that Viterra was selling the stuff. But Viterra is not a straight-up commodity play in the sense of selling grains. You would do better to imagine a toll road. Volume is the name of the game. Volume and efficiency, not grain prices, dictate the profit profile here.

Its largest business is grain handling, chipping in 65% of sales. Viterra has lots of those tall grain elevators you may have seen in grain country. About two-thirds of Viterra’s grains eventually head west by rail and ultimately wind up in the Asia-Pacific region. In this way, it’s a fine backdoor play on the booming demand in Asia and its peoples’ rapidly evolving diets. The falling Baltic Dry Index, which measures shipping costs, bodes well for Viterra. Cheaper shipping costs make Western Canadian grain cheaper for Asian buyers.

Viterra’s second largest business is as a retailer and distributor of agri-products such as fertilizers, seeds and crop protection products. The company has 276 retail locations across the Canadian prairies. Viterra is the biggest dog on the block, with 45% market share in Western Canada.

In the big-picture sense, Viterra’s profits tie more closely with seeded acreage and the mix of crops so planted. These variables do not vary much from year to year.

And just to juice up the mix a bit, Viterra has a 34% interest in Canadian Fertilizers Ltd. (CFL), a nitrogen fertilizer plant in Medicine Hat, Alberta. Here CFL earns a spread on the difference between fertilizer prices and natural gas. This business is not particularly significant at the moment, but it is an interesting asset, nonetheless.

The recent market crash has been rude to Viterra’s share price, but it is a gift for investors who want to buy more. Just yesterday, the company announced surprisingly strong earnings for the fourth quarter, thanks to robust demand for agricultural products like fertilizer. “Viterra blew the lights out in the fourth quarter,” one Canadian analyst cheered.

For all of 2008, Viterra earned C$1.25 per share. And yet, as I write, the share price is a mere $9.25 per share – or only about seven times earnings. Moreover, book value is nearly $10 per share. The financial position is strong, with net debt less than 8% of capital and loads of cash.

There are rough comparables out there that may help in arriving at a valuation for Viterra, such as Archer Daniels Midland on the grain handling side and Agrium on the retail side. Using a blended valuation of these two companies, I get a value for Viterra around $15 per share. And all of these agricultural companies are trading at somewhat depressed valuations.

Though it has little bearing on the share price, Viterra may be the only publicly traded enterprise run by a former NFL wide receiver. Mayo Schmidt, CEO of Viterra, played wide out for the Miami Dolphins in a brief stint. More importantly, though, Schmidt deserves credit for making many great moves – such as the acquisition of Agricore in 2007 – and proving a savvy chieftain.

There are more moving parts here, so I am simplifying somewhat, for the sake of brevity. The bigger picture is what I want you to focus on. In Viterra, we have a well-financed and well-managed company trading at attractive levels. The company also has big winds in its sails. To repeat; Viterra is like a toll road for grains. And I don’t see any decline in the traffic of that toll road over the next several years.

I expect Viterra will be a good investment over the years. At a minimum, I expect Viterra to exceed its old high of $15, as the grain markets enjoy another push next year.

Source: Investing In Food

More from The Sovereign Society:

The majority of large-cap oil stocks didn’t produce strong gains as oil prices skyrocketed to US$147 a barrel earlier in July. That’s too bad because the massive reversal we’ve seen in oil prices is taking oil stocks along for the ride and making some great bargains along the way.

Despite the fact that oil stocks didn’t surge amid US$100-plus oil, they’ve certainly collapsed on the way to US$63 a barrel. The fact is most of these big companies are priced for US$32 a barrel oil, according to Macquarie Research.
The large-cap oil majors now trade at 2004 prices. The entire sector is now off a stunning 55% from their all-time high and just 5% above their recent lows last week.

Even more compelling, the dividend yields on some of the largest companies are in excess of 4% and, in some cases, above 5%. The European oil majors now yield in excess of 5-7%. That compares quite favorably to 10-year Treasury bonds, yielding a paltry 3.7% or risk-free T-bills, yielding less than 1%.

Even if Presidential hopeful Obama wins next Tuesday and increases the dividend tax rate from 15% to 20% as expected, that still leaves oil investors with a far more attractive tax-adjusted yield. Oil stocks are just plain cheap right now.

Another reason to like Big Oil at these prices is the ongoing carnage suffered in the Energy Patch since prices peaked in July. Global sentiment has turned from irrational exuberance to absolute dismay over the last 90 days with oil prices trading at a 17 month low. Investors are redeeming their natural resource equity fund en masse, NAVs have plunged 50% and OPEC’s recent announcement to cut production did nothing to support prices.

Also, oil legend T. Boone Pickens – who made his fortune in oil – is suffering one of his worse draw downs this year. His hedge funds have crashed this fall with losses totaling more than US$1 billion. Investors are redeeming as losses continue to mount; one energy dedicated hedge fund has plunged 84% in 2008.

Energy bulls enjoyed a glorious era of big profits from 2002 until mid-2008. Now we’re in the midst of a serious correction in the energy bull market. Some pundits even claim we’re now in a bear market as prices have declined more than 50% since peaking in July.

The best time to buy an asset is when absolute disrepute reigns supreme. Investors have gone from embracing oil at all costs to dumping the energy stocks almost daily since July. It’s been a relentless decline.

Now is the time to start cherry picking the large-cap oil stocks at 2004 prices. The large-cap oil companies are still flushed with cash, pay fat dividends and should recover over the next 12-18 months as commodities prices finally trough. I like Big Oil.

Source: Oil Majors Hit The Decks: Time to Start Cherry Picking