A 13% rally in 2012 to the best level in six months is good enough to beat the S&P 500 by nearly 500 basis points. Even with the big move to begin the New Year, it has not been enough to get this sector exchange-traded fund (ETF) back near the highs set in early 2011. The Market Vectors Agribusiness ETF (ARCA:MOO) is this ETF.

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

The agricultural chemical and related sectors struggled in 2011, lagging the overall market, but so far in 2012 they are trying to get back to being the leaders they have been the past few years.

Agricultural ETFs
There are several ETFs that take aim at the agricultural equity sector and each has its own technique of achieving that goal. The ETF mentioned above, MOO, is the largest of the group with nearly $6.2 billion in assets under management. The ETF is composed of 47 stocks in the sector with the majority (82%) falling into the large cap asset class. The United States and Canada account for half of the holdings, with a myriad of foreign countries making up the other 50%. The expense ratio is 0.56%.

The Global X Fertilizers/Potash ETF (ARCA:SOIL) has slightly outperformed MOO in 2012 with a gain of 15%. The 29 stocks in the ETF are all involved in the fertilizer business in some manner. The U.S. and Canada make up 38% of the ETF that charges an expense ratio of 0.69%. The major difference is the makeup of the two ETFs, even though they may sound similar, the holdings are not comparable. With MOO, investors get exposure to the big names in the agricultural sector, whereas with SOIL it is composed of international names that are specific to fertilizers. (For related reading, see An Inside Look At ETF Construction.)

Agricultural Stocks
American Vanguard Corp
(NYSE:AVD) makes chemicals for the agricultural industry that includes insecticides, soil fumigants and growth regulators. The stock has had a great run recently and is at the best level since 2008. With a PEG ratio of 1.62 it falls into the fairly valued camp, however it is tough to ignore the chart. The key is patience with AVD; let it pull back to near $15 for a buying opportunity. The current dividend yield is 0.6%.

Rentech Nitrogen Partners LP (NYSE:RNF) produces nitrogen fertilizers for the agricultural industry. The limited partnership is a subsidiary of Rentech (AMEX:RTK). The stock is a recent initial public offering that began trading in November 2011 and has done extremely well, up 58% for the year. According to the SEC filings, RNF plans on paying an annual dividend of $2.34, equating to a yield of 9.1%. Due to the huge rally RNF has already experienced, the key is to let the stock come back to the low $20's before considering buying.

CVR Partners LP (NYSE:UAN) is in a very similar business as RNF and also pays a large dividend of 9.2%. The stock is a subsidiary of CVR Energy (NYSE:CVI). UAN began trading April 2011, and is up 14% in 2012 after hitting an all-time high earlier this month. Look for support at the $27 area, this could be the next buying opportunity.

The Bottom Line
The agricultural stocks have been strong over the last few years and hit a small speed bump in 2011. It appears they are back on track and could be, once again, overweighted in a portfolio. The one red flag is the current price appreciation of many of the stocks in the sector. I suggest waiting for a normal pullback of about 5 to 10% before pulling the trigger. This will allow for a more attractive reward-to-risk setup. (For additional reading, check out 5 Must-Have Metrics For Value Investors.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Matthew McCall did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Investing News

    Bank Stocks: Time to Buy or Avoid? (WFC, JPM, C)

    Bank stocks have been pounded. Is this the right time to buy or should they be avoided?
  2. Stock Analysis

    Why the Bullish Are Turning Bearish

    Banks are reducing their targets for the S&P 500 for 2016. Here's why.
  3. Stock Analysis

    How to Find Quality Stocks Amid the Wreckage

    Finding companies with good earnings and hitting on all cylinders in this environment, although possible, is not easy.
  4. Chart Advisor

    How Are You Trading The Breakdown In Growth Stocks? (VOOG, IWF)

    Based on the charts of these two ETFs, bearish traders will start turning their attention to growth stocks.
  5. Mutual Funds & ETFs

    Pimco’s Top Funds for Retirement Income

    Once you're living off the money you've saved for retirement, is it invested in the right assets? Here are some from PIMCO that may be good options.
  6. Chart Advisor

    Watch This ETF For Signs Of A Reversal (BCX)

    Trying to determine if the commodity markets are ready for a bounce? Take a look at the analysis of this ETF to find out if now is the time to buy.
  7. Investing News

    What You Can Learn from Carl Icahn's Mistakes

    Carl Icahn has been a stellar performer in the investment world for decades, but following his lead these days could be dangerous.
  8. Mutual Funds & ETFs

    ETFs Can Be Safe Investments, If Used Correctly

    Learn about how ETFs can be a safe investment option if you know which funds to choose, including the basics of both indexed and leveraged ETFs.
  9. Mutual Funds & ETFs

    The Top 5 Large Cap Core ETFs for 2016 (VUG, SPLV)

    Look out for these five ETFs in 2016, and learn why investors should closely watch how the Federal Reserve moves heading into the new year.
  10. Investing News

    This Is Why Every Chipotle Is Closed for One Day

    Chipotle Mexican Grill Inc. (CMG) has had a rough year when it comes to food safety. Management is hoping that closing all locations for a company-wide meeting Monday will help resolve the issues ...
  1. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  2. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  3. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  4. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  5. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
  6. Can mutual fund expense ratios be negative?

    Mutual fund expense ratios cannot be negative. An expense ratio is the sum total of all fees charged by an asset management ... Read Full Answer >>
Trading Center