Origin Agritech Limited (SEED – Nasdaq)
Dear Bottarelli Research Member,
We’ve once again had some great upside moves in many of our picks. Our dry bulk shippers were particularly strong this week, and the new 52-week highs set by Star Maritime (SEA – AMEX) and Oceanfreight (OCNF – NASDAQ) signal to me that there will be plenty more upside to come. Make sure you have boarded both of these vessels, as they are leaving port and headed north. After all, commodities are experiencing unprecedented demand in every country around the world, and sea-based shipping is the only way to import and export much-needed goods across the globe.
As you very well know, I am squarely in the bull camp for commodities. That’s why we’re going to stick within this same theme for today’s newest pick. In fact, the pick dives right into the heart of the entire commodity food chain. Without this company’s product, for example, it would be almost impossible to grow corn, cotton, and other essential staples needed for every emerging country worldwide. That alone is very bullish for years to come, but the best part about this company is the fact that they specialize in the production, sale, and distribution of hybrid crop seeds in China.
This company owns or leases facilities in Beijing, Gansu, Henan, Helongjiang, Liaoning, Jilin, Hainan, Sichuan, Hebei, Yunnan, Jiangsu, Shanxi, Guizhou, Hubei, Anhui, Guangxi, Hunan, and Jiangxi provinces. As of 2006, they had ten proprietary corn hybrids, six proprietary rice hybrids and two proprietary canola hybrids currently on the market.
This market is hot, folks, and I do mean hot. Without these basic food staples, people could not survive. It’s a basic concept: We must have more and more seed to feed the world’s booming population, especially in China and India. In fact, the company I’m bringing you this week is right on target to be the Monsanto (MON – NYSE) of the Pacific Rim. It’s that powerful. What’s more, they’ve also just been given approval to sell their hybrid cotton seeds in India. Things are happening fast and now is the time to strike.
Now, as Bryan will tell you, I discovered this stock about a year ago, but I have held back on putting out a recommendation. With everything finally lining up exactly as I thought, the time to jump in is now. The company is called Origin Agritech Limited (SEED – NASDAQ), and the stock just bounced incredibly hard off its lows of the year. But make no mistake, the upside if far from over. Let’s establish a new position anywhere between $10.00 and $13.00 per share. Bryan will fill you in on all the details, but first some updates…
UPDATES
Beacon Power (BCON – NASDAQ): Already up 33% from our September 24th entry price, BCON is obviously moving very well for us. Over the next few months, I think we’ll be hearing a lot more about their Flywheel technology so make sure you own this stock.
Metalline Mining (MMG – AMEX): As I told you last week, this is one of my favorite stocks. It has finally started to move off its lows, and I believe within the next 2 years, we’ll see this one trading over $25.00 per share. If you haven’t already done so, make sure you pick up some MMG down at these bargain prices.
Skins (SKNN.OB): Although it’s currently trading below our original buy price, remember that we got into this one on the ground floor. They’re heading into their very first Christmas season, and I stand firm on my belief that this could be the next CROX. We have to give this one room to grow and I would be adding to my position at these levels.
Big Cat Energy Corporation (BCTE.OB): Low and behold, we have confirmation that BCTE is doing business with Marathon Oil! Their ARID tool will be used in a pilot testing project in 11 CBM wells in the Powder River Basin – and this is fantastic news that could finally offer the upside trigger we’ve been waiting for. As you know, I have stayed with this company through thick and thin, and although shares are well below our original entry, I fully expect the stock to make up this ground very quickly.
On a closing note, our last nine small-cap picks (dating back to August 13th) have all performed incredibly well, highlighted by 14% on Graham Corporation, 23% on Isis Pharmaceuticals, 60% on Sinovac Biotech, 40% on Echelon Corporation, 36% on Oceanfreight, and 57% on Melco PBL Entertainment. Let’s keep the profits rolling in!
Have a good week.
Sincerely,
“The Monsanto of the Pacific Rim”
“…one of the most robust hybrid seed portfolios and pipelines in China.”
- Dr. Gengchen Han, Chairman and CEO
The investment thesis for a company like Origin Agritech Limited (SEED – NASDAQ) is quite simple.
You see, as of September 2007, the world’s population was believed to be around 6.7 billion – and this figure continues to grow at an unprecedented rate.
By the year 2050, the world’s population is expected to reach over 9 billion – with most of the population living in the Pacific Rim. For example, consider this:
- Of the world’s 15 most populous nations, China ranks #1 with 1.32 billion. That’s just under 20% of the total world population.
- Coming in at #2 is India with 1.12 billion. That’s good for 17% of the world’s population.
- And just for a frame of reference, the United States ranks a distant third with 300 million. That’s good for about 4.6% of the total world population.
Now, I bring this up because we (with “we” meaning the world) must somehow shoulder the tremendous burden of feeding our massive global population. This momentous burden highlights the economic importance of seed companies like Origin Agritech Limited.
We all know that seeds are used to propagate crops such as grains, legumes, forest trees, turf-grasses and pasture grasses. But many investors don’t realize that the majority of human calories come from seeds, especially cereals, legumes and nuts. Seeds also provide cooking oils, corn feed for livestock, rice, spices, and many other important food additives. Not only that, but the world’s most important clothing fibers grow attached to cotton seeds. That’s why the production of seeds is a multi-billion dollar business.
As you’ll see below, there are only three publicly-traded “pure plays” in the global seed market. And although there are no signs of this market’s incredible growth slowing down anytime soon, Wall Street has yet to truly realize the enormous importance and economic dependence that seeds have on our world prosperity. Heck, if Wall Street treated seed companies anywhere like oil stocks, every single seed stock would have exponentially higher valuations.
But these “exponentially higher valuations” have yet to happen, and that’s why the China-based hybrid seed maker Origin Agritech offers such a powerful investment opportunity.
Founded in 1997 and headquartered in Beijing, Origin Agritech offers four of the most important principal seed products: corn, rice, cotton, and canola. Here’s a brief summary of these four critical products…
Corn Seed: SEED has 42 corn hybrids on the market that cover the spring planting season in China’s northeast and southwest regions. They also cover the summer planting season in China’s central region. Origin’s corn hybrids offer excellent yield, disease resistance, and high seed quality – which helped their sales volume rank among the top 3 in mainland China’s market.
Rice Seed: SEED has 32 rice hybrids on the market that cover the upper, middle, and lower stream of the Yangtze River area plus the central region of China. Most of SEED’s rice hybrids are better than grade 3 quality rice, which has allowed their sales volume to rank among the top 5 in mainland China’s market.
Cotton Seed: SEED has seven cotton varieties in the market consisting of insect resistance hybrids that are suitable for the Yangtze River, Yellow and Huai River, and Xinjiang cotton-production regions. The fiber quality of these cotton varieties has met the national textile standard – and they’ve also achieved the highest insect-resistance level of the state.
Canola Seed: SEED has eight canola seed varieties, making them the leader in this market sector.
These four hybrid seed products give SEED a very strong footprint in China and India’s booming seed market. But here’s the important aspect of this investment:
Right now (virtually under the radar of Wall Street) the entire farm products industry is experiencing an amazing 12.40% quarterly growth rate – which has contributed to a solid gross profit margin of 11.34% across the entire farm products sector. For an entire industry, these numbers are remarkable. But even more remarkable are the statistics for the seed-specific companies.
Monsanto (MON – NYSE), for example, is the #1 seed company. They have a market cap of $51.07 billion and gross margins of 49.37%. Syngenta (SYT – NYSE) is the #2 seed company. They have a market cap of $21.82 billion and gross margins of 49.48%. With margins like these, it’s easy to understand why MON can support a whopping P/E ratio of 49. Just look at MON’s stock chart and you’ll see what numbers like this can do to the stock. Since January of 2001, MON is up 600%. And as you can see by the recent chart activity, it’s still moving higher!
Now here’s the thing: Aside from MON and SYT, the only other competing seed company available is Origin Agritech Limited.With a market cap of only $298.12 million, their stock truly has explosive upside potential. Plus, since they have strong exposure in the two largest and fastest-growing populations in the world, SEED is the most explosive seed-based play money can buy.
Plus, since the stock is followed by only one Wall Street research firm (an outfit called Maxim Group, which initiated a buy way back on February 27th of 2006), SEED is truly a Wall Street secret.
But this won’t last for long.
You see, on Monday, September 17th, SEED’s board of directors approved a stock repurchase program that seeks to acquire up to $10 million of the company’s common stock. And on that same day, SEED received commercial approval from the Indian Genetic Engineering Approval Committee to sell three varieties of its insect-resistant and genetically modified hybrid cotton seed in India. That’s right in time for the 2008 growing season. Now I admit, this may not sound like exciting news, but consider this:
India is one of the largest producers of cotton in the world. And with cotton hybrids producing a 34% to 74% higher crop yield (compared to open-pollinated cotton varieties), it’s easy to see why this news offers SEED such incredible upside potential. In fact, this new deal means that SEED’s products now account for 42% of India’s planted cotton area – giving them a major stronghold on this crop.
That alone could warrant a strong investment thesis in SEED, but the positive news flow doesn’t stop there.
On Wednesday of this week, SEED was chosen by Forbes Asia as one of Asia’s 200 “Best Under a Billion” companies. This annual list takes over 22,500 publicly listed companies doing business in the Asia/Pacific markets and screens every one of them for consistent profitability and growth over the past three years.
The result is an honor roll of high-powered companies that have historically outpaced the market by a wide margin. Shares of last year’s 200 companies, for example, jumped by a market-cap-weighted 47% for the 12 months that ended August 30th. That far exceeds the returns of the major market averages.
So as you can see, the stocks included on this list are quite special. And as you’ve probably guessed, Forbes’ newest list (which was published online two weeks ago) includes SEED as one of their top companies. On this news, shares of SEED gained $3.92. Check out the chart:
In response to this new ranking, SEED’s Chairman and CEO, Dr. Gengchen Han, said, “Origin has grown significantly since its founding in 1997 by developing and leveraging a vertically-integrated business platform that includes one of the most robust hybrid seed portfolios and pipelines in China. Our proprietary products are combined with the country’s largest production capacity, national distribution, and a solid financial position. We are focused on the continued execution of our strategic growth plan and are positioned to serve the needs of farmers throughout China and parts of southeast Asia.”
Now, I understand that it’s sometimes difficult to buy a stock that’s experienced such a tremendous upside run-up. But since we plan to hold SEED for the next 12 to 24 months, we’re not trying to “time” an entry point. Rather, Mark and I both feel that SEED will offer uncommon upside returns over the next two years, and with the company just beginning to receive overwhelmingly bullish international media exposure, the time to own this stock is now.
Ideally, I’d like to buy shares at or under $10.00, but we may not see these prices anytime soon. Therefore, I’d like to set a buy range on SEED anywhere between $10.00 and $13.00 per share. Over the next 6 to 12 months, you could easily see shares trading for $30.00, so let’s establish a position now!
PLAY: Buy shares of Origin Agritech Limited (SEED – NASDAQ) between $10.00 and $13.00 per share, good for the week.
Sincerely,
© 2012 CSR Group, LLC. All rights reserved. Published in USA.
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