Wall Street throws a sale for value investors.
But investors should be careful about selection
Uncommon volatility, uncertainty about the Federal Reserve interest rate policy and complexity driven by depressed oil prices might have some investors running for the hills.
Not Michael Underhill, though. The founder and chief investment officer of Capital Innovations LLC in Pewaukee is doing exactly the opposite: He’s looking for securities to buy.
“We’re in a perfect storm to generate some meaningful returns for investors,” Underhill said.
During the bull market that ran from 2009 into 2015, investors could buy broad-market exchange-traded funds “and then work on their golf game for the rest of the year,” he said. Now, things have changed.
“Investors need to be surgical about security selection, and now is a time when value investing really provides a unique lens through which you can find opportunities,” Underhill said.
Barrick Gold Corp. (ABX, $12.25), Toronto, Canada, produces and sells gold and copper. The company also is involved in exploration and mine development activities.
Barrick has 14 producing gold mines in Canada, the United States, Peru, Argentina, Australia, the Dominican Republic and Papua New Guinea, Underhill said. It also holds a nearly 64% equity interest in Acacia Mining plc, which owns gold mines and exploration properties in Africa.
The stock provides an opportunity to capitalize on growing concerns about the declining value of emerging-market currencies and sluggish global demand for goods and services, Underhill said. Also, the 2015 sell-off in commodities reduced valuations, perhaps creating a good entry point for buying, he said.
The biggest risk is the possibility of a significant improvement in the global economy or production, “which I think we can all agree isn’t coming anytime soon,” Underhill said.
The shares have a 52week trading range of $5.91 to $13.70. The stock could go as high as $13 over the next 12 to 18 months, he said.
Adecoagro S.A. (AGRO, $11.91), Luxembourg, is an agricultural company that engages in farming and energy production.
Argentina and Brazil have eliminated export taxes and quotas on corn, beef, chicken and other agricultural commodities. Robust weather patterns have created above-average yields in corn and soybeans, and profit margins on agricultural products are rising, Underhill said.
As a result, analysts expect land values to increase by as much as 30% to 40%, Underhill said. And Adecoagro offers one of the few ways investors can buy a publicly traded security that owns Argentinian and Brazilian farmland, he said.
“With Adecoagro, investors can gain access to rice in Argentina, coffee plantations in Brazil, sugar ethanol, farming and other areas,” he said. One of the company’s largest shareholders is George Soros, the well-known hedge fund manager, he added.
The biggest risk is that the company is small, with a market cap of only about $1.4 billion, Underhill said. Also, there is the unlikely risk people could slow their consumption of food products, he said.
The shares have a 52week trading range of $6.71 to $12.55. The shares could reach as high as $12.50 in the next 12 to 18 months, Underhill said.
Weyerhaeuser Co. (WY, $22.60), Federal Way, Wash., is a real estate investment trust that owns timberland, makes wood and specialty cellulose fiber products and develops real estate, primarily as a builder of single-family homes.
Timber prices should benefit from shrinking forests and increases in new home starts, he said.
“That kind of supply/demand imbalance means timber prices are likely to rise,” he said. It is estimated that timber accounts for 16% to 18% of the costs for a newly constructed home, he added.
Weyerhaueuser provides investors with income, inflation protection and portfolio diversification away from traditional stocks and bonds, he said. T. Rowe Price, a $689 billion money management firm, last week bought 31 million shares of Weyerhaeuser, he added.
The biggest risk to Weyerhaeuser is the possibility the rising U.S. housing market could slow significantly, Underhill said.
The shares have a 52week trading range of $22.06 to $35.75. The shares could go as high as $35 in the next 12 to 18 months, he said.
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The Journal Sentinel focuses on one Wisconsin money manager or analyst in this weekly feature, looking at a trend that helps investment pros make their decisions.