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Carmine Romano
Carmine Romano
Articles (17) 

Alico Inc: A Brief Introduction to the US Agriculture Company

About the author:

Carmine Romano
By Carmine Romano. I have leveraged expertise in both commodity and stock markets to drive short-term and long-term trades for personal account. Integrated knowledge of economics, fundamental and technical analysis, and statistics / probabilities theories to realize portfolio growth and profitability.
Selected accomplishment:
• Realized average annualized returns on self managed IRA account of 14% from January 2004 to December 2012 (total return 150+).


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Rating: 3.2/5 (11 votes)

Comments

the Spark
The Spark - 3 years ago
My first visit to Alico was over 20 years ago. This is one of the most frustrating management teams you will ever encounter. Good luck to any outside shareholder who tries to realize value here. The company did a poor job years ago in capitalizing on its most value piece of land-the Lee County property. I have visited much of the acreage the company owns and much of it is very unattractive for development purposes.

crafool
Crafool - 3 years ago


If you are looking for a publicly traded agriculture company, I would say you might want to take a look at Archer Daniels Midland (Symbol: ADM). ADM has a large network in place for buying and processing an enormous share of the nation's wheat, corn, soybean, sugar and many other commodities that it sells to food, feed and other commodity using companies.

The company's shares have traded down since the drought in the mid-west has put in doubt the amount of crops the company might be able to sell overseas. America has had droughts before and will again but they have always ended and this one will as well. This drought could be giving an opportunity to savy investors.

The company has a tremendous balance sheet with an enormous amout of current assets (cash, receivables, inventory, other) compared with its level of current liabilities (accounts payable, debt due and other). It is in the area of $11 to $12 billion and long-term debt of around $6.5 billion means this company has a pretty decent balance sheet. It also means the stock might be trading cheaper than its current P/E implies. I use the excess of current assets after the reduction of current and long-term liabilities as a way of lowering the enterprise value or EV. Thus, the EV to say around $1.70to $1.83 implies around a 10% after tax earnings yield compared to a taxable 10-year Treasury yielding 1.67%.

I think could be in our future with politicians refusing to do the tough work and leaving it to central vbanks worldwide to inflate our debts away with there zero interest rate policy and bond buying. I think this inflation would likely find its way into food. ADM is a huge player in food if not the 600 pound gorilla and if its main product goes up so should its revenue and ability to keep its earnings rising.

ADM is also pretty shareholder friendly with increasing its dividend every single year for over 20-years and earning it the designation as an "S&P Dividend Aristocrat Stock". Current, yield is around 2.5%. So an investor can collect 2.5% with the potential for future growth or a 10-year Treasury? What should they do?

I know what I would do, but after you do your own home work hopefully the choice will be clear for you as well. Happy investing to all.
Chaim422
Chaim422 - 3 years ago
Farms seem like a tempting way to hedge against inflation. However, Warren Buffett has said that capital intensive businesses do not do well during inflationary periods. Does anyone know why?
Carmine Romano
Carmine Romano - 3 years ago
Demand Shocks are what drove commodity prices to all time high in the 70's. Thus, the overall inflation can be nominal but prices of certain agriculture commodities can increase significantly from demand shocks. It can move from one commodity to another over time as well.

Alico's future value will not come from undeveloped land, it will come from a significant rise in the price of sugar and oranges which will also increase the value of those properties.

So say have a capital intense business , with nominal inflation increasing its capital needs and you have a 30% to 50% increase in the price you can sell you product. That is a business I would want to own.

Look at what Warren Buffet is doing not so much as to what he said in the past. He holds many capital intensive business, Rails, Oil and gas etc.

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