Writing in Forbes magazine, Lee Kaun Yew, the former Prime Minister of Singapore, stated that by 2020, the gross domestic product of China should be equal to that of the United States. After that, the gross domestic product of China will increase faster than America’s, Yew predicted in his piece, “Once China Catches Up: What Then?.” An outcome such as that featuring strong economic growth in China in very bullish for agricultural concerns located in North America such as Caterpillar (NYSE: CAT), Deere & Company (NYSE: DE), and Potash Corporation of Saskatchewan (NYSE: POT).
As detailed on previous articles on this site, there is much to like about stocks in the farming sector.
Caterpillar, Deere & Company, and Potash of Saskatchewan are all industry leaders. Each is very attractively priced due to agriculture stocks being out of favor with investors. That will change once Chinese growth increases, as is happening again.
That results in very alluring valuations for long term investors.
Caterpillar, the world’s largest heavy equipment producer, is selling at a price-to-earnings growth ratio of 0.66. A stock is fairly valued with its price-to-earnings growth ratio is 1. For Deere & Co., the price-to-sales ratio is only 0.83. That means that each dollar of sales is selling at almost a 20% discount in the stock price for the maker of tractors and other machines. The price-to-earnings ratio for Potash Corporation of Saskatchewan is only 12.69, when the average for a member of the Standard & Poor’s 500 Index is around 19.
All of these stocks pay for the shareholder to wait for it to be fully valued with generous dividend yields.
The dividend for Potash Corporation of Saskatchewan is 4.28% The average for a member of the Standard & Poor’s 500 Index is around 2%. For Caterpillar, the dividend yield is 2.87%. The dividend yield for Deere & Company is 2.47%.