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Small Caps
Feasting On Solving The World Food Shortage
AllPennyStocks.com News
April 21, 2008 (AllPennyStocks.com Media, Inc.) – Economics
used to be known as the “dismal science”, for once upon a
time, its practitioners made projections that were almost
uniformly gloomy. In the early 19th century, the population
was thought to be climbing at a rate faster than available
land to produce the food needed to feed those new mouths. Only
when agricultural and medical advances caught up with these
population trends did the hunger problem cease to be so
persistent.
But now it appears, however far we’ve come as a society, food
shortages are becoming more frequent, with what environmental
crises and the advent of global warming. Droughts have been
the results of severe climate change in previously
self-sufficient areas of the world, primarily Southern Africa,
as indicated in United Nations studies. As recently as 2005,
such studies, seconded by the U.S. government in Washington,
showed that more than 30 countries were experiencing droughts
and food shortages, with other countries unhappily ready to
follow suit, with some of their worst harvests in decades.
The silver lining amid all these clouds is that solutions are being offered up
by daring companies equipped to reverse these trends, and, as the song goes,
rise above and feed the world. More to the point, investors with a propensity
toward risks may find themselves profiting from these pioneering firms.
One of these is a producer of the potassium-based fertilizer known as potash,
mined almost exclusively in the Canadian prairie province of Saskatchewan. This
producer is known as Potash One
(TSX VENTURE:KCL).
With new tax relaxations on potash mines exercised by a Saskatchewan provincial
government once thought far to the left ideologically, producers, big and small,
of the potassium-based fertilizer have announced expansion plans exceeding $350
million U.S.
Demand for the fertilizer, which lay beneath the seabed for millennia, has
mushroomed in recent years, particularly from such markets as Brazil, China and
India. It is in China, especially, that greater appetite for beef, pork, chicken
and other meat products has manifested itself, which has led to a 19-per-cent
surge in demand for potash.
Word came down in mid-April that the Communist giant has agreed to pay a whole
lot more for potash – more than $550 a tonne for one million tonnes of
Saskatchewan potash this year, or more than triple what it paid last year.
To watchers of smaller stocks, KCL, based in Saskatchewan’s capital of Regina,
must be a sight for sore eyes, climbing from only a dollar Canadian last summer
to a peak of $5.00 in late March, before settling in at its current perch around
$4.30. To farmers anxious about the richness of their soil, Potash One and other
firms in the province must also represent beacons of hope.
A Southern California-based company also with much to say about the state of the
world’s agriculture is U.S. Farms Inc.
(OTCBB:USFI). The company, headquartered in San Diego, is a diversified
commercial farming, nursery and brokerage firm which grows, markets and
distributes horticultural products through a host of subsidiaries.
Yan K. Skwara, company president, acknowledged earlier this year that “the
demand for Food and Nursery products nationwide has never been higher and we
remain extremely bullish on our long term prospects as the Agricultural space
continues to expand and thrive." Accordingly, the company refocused its business
activity in the agricultural sector during last year’s second and third
quarters, and watched its numerous subsidiaries score sales records through the
year.
The majority of growth was from revenues generated through the California
Produce Exchange, which distributes a variety of bulk vegetables and fruits to
brokers, distributors and food converters.
The exchange had sales topping $8.6 million, while another subsidiary, American
Aloe Vera Growers, had sales of $677,000. American Aloe farms and sells
domestically grown aloe vera potted plants to brokers, re-wholesalers and
retailers.
Still another, American Nursery Exchange, had sales exceeding $126,000, of
palms, jade, cycads and other potted plants to grocery stores, garden centers,
landscapers, and home improvement outlets.
In all, USFI saw record revenues of $9.5 million last year, resulting in a gross
profit of $771,701 or about 8.2 per cent of revenues, dwarfing its 2006 profit
of only $36,141, or about 10 per cent of revenues.
Seeing the problem of poor harvests and acting to provide solutions to growers
great and small have made this company a force to be reckoned with among
agriculturally-based companies. USFI is also beginning to turn heads in the
investment community, particularly among small cap investors in search of
bargain stocks with a fair bit of upside.
U.S. Farms has traded over the last 52 weeks in a sub-dollar range, bottoming
out around nine cents earlier this year, after peaking around 94 cents. The
price of USFI stock found itself at 11 cents in the third week of April.
This piece focuses once again on China. Arguably the largest country on earth,
and host to the world this summer for the Olympics, China has domestic problems
wherever it turns, not the least of which is feeding its population.
Fortunately, with a relaxation of many of its restrictive policies governing
investments, the Communist superpower can achieve solutions to the growing
problem of hunger and drought.
One company aiming to profit by finding solutions is China Agritech, Inc.
(OTCBB:CAGC) since early 2005. China Agritech is a rapidly growing (in
more ways than one), solidly profitable U.S. public company operating in China,
and a leading developer, manufacturer and distributor of environmentally
friendly liquid compound organic fertilizers serving the Chinese agricultural
industry.
“The Company’s unique, proprietary fertilizers,” the company’s website says,
“are the result of over 12 years of research and development in cooperation with
leading agricultural experts. We continue to invest in research and development
to maintain and extend our competitive advantage. Our ongoing growth strategy
includes geographic expansion throughout China as well as export to other Asian
countries.”
CAGC’s expansion program is an ambitious, two-pronged one. First, the company
plans to prove the safety and reliability of its products. The historically
highly fragmented nature of the Chinese fertilizer industry has created a void
in the reliability of fertilizer products nationwide.
Secondly – and here’s where North American capitalism comes into the picture -
by accessing the public markets in the U.S., China Agritech will have the
ability and capital to launch an extensive advertising campaign to educate the
farmers on the benefits of its liquid organic compound products, and to either
acquire or build facilities to meet the growth in demand.
CAGC put its best foot forward in late March by announcing eye-popping financial
results for the previous year. Revenues went skyward in 2007, leaping 33 per
cent, to a record $39.3 million, gross profit climbing more than 32 per cent to
$20.3 million, also an all-time high. Net income zoomed 59 per cent to $8.5
million, or 39 cents per diluted share. The company also completed a private
placement financing, which raised $15 million to help build new granular
production facilities.
The company also reported penetrating new markets in central and southern China
and signed a $7.8-million contract with Sinochem Fertilizer, the largest
fertilizer distributor in China. A new granular fertilizer facility in Beijing
is being tested in April; it’s set to open and go into production in May.
China Agritech continues to aim high. Its 2008 target for revenue is set in the
range of $60 - $62 million, with net income projected to be $9.5 - $10 million.
Small cap investors ignore this success (and the prospect of more) at their
peril. As with many stocks on the market these days, CAGC is in the bottom
drawer of a wild 52-week trading range that saw its summit last October at
$6.25, before descending the staircase to $1.78 in late March. The stock
concluded trading in the fourth week of April at $2.71, on volume of more than
165,000 shares.
One has to look at the world food shortage situation with concern, but not the
gloom that plagued populations in earlier times. As we have seen in these three
examples, companies around the world are finding cures to the problems of
drought and want, and all three bear close scrutiny from investors anxious to
“feed” their portfolios with valuable holdings.
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