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Stocks are at Record Highs—but You Can Still Find Growth, Safely: AGCO Corporation (AGCO), Potash Corp./Saskatchewan (USA) (POT)

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With the stock market at record highs, should you be loading up—or should you lock in gains?

And like most good questions, there’s not a simple answer.  On one hand, S&P 500 companies grew earnings 6% in the most recent quarter. On the other hand, GDP only rose a scant 0.01%, and much of the corporate earnings “growth” was from cost cutting—not top line revenue.

It can all leave you feeling a little conflicted. But rest assured that there are still undervalued growth stories in this market. Here are a few long-term winners.

Potash Corp./Saskatchewan (USA) (NYSE:POT)The AgSuperBull

It’s true, I’ve been saying that we’re in the midst of an Agriculture “SuperBull” over and over—but I promise I’m not being a “Homer.” The truth is, these stocks offer one of the truly undervalued growth stories today, despite being at or near 52 week highs.

These valuation and growth numbers from Potash Corp./Saskatchewan (USA) (NYSE:POT) and AGCO Corporation (NYSE:AGCO) illustrate the promise in this sector.

Company P/E ROE 5 yr EPS growth rate
Potash 16 24% 16.82%
AGCO 9.9 16.15% 17.04%

These companies win in two ways when it comes to numbers: they have reasonable valuations and a great history of quality growth.

But they also win in “two ways” when it comes to the growth trends of tomorrow.

In the near-term, the USDA is projecting record crop prices all the way through 2014. In the long-term, the global population is expected to eclipse 9 billion (from 7 billion today) within 30-35 years, and climate change is expected to increase drought. Furthermore, emerging middle class economies like China and India will continue to drive demand for crops higher and higher.

What does all this mean? It means that it’s highly likely that the USDA will be making record projections for the foreseeable future. All signs point to a hungrier world that’s harder to feed. That’s simply wonderful news for companies that produce farming equipment (like AGCO Corporation (NYSE:AGCO)) and fertilizer (like Potash Corp./Saskatchewan (USA) (NYSE:POT)).

This may not be the “sexiest” sector, but if we really want to find safe growth at these levels, we should embrace the boredom.

Trade the world

Even before the “Great Recession,” growth rates in the U.S. were expected to lag emerging economies. The reason for this is that the U.S. economy is like an overcrowded mutual fund with a “star” manager–it’s just too big to out-grow its peers.

Simply put, to avoid the lofty U.S. market—trade the world.  I particularly like Russia and Canada because of their heavy (and undervalued) oil supplies. The market is simply not appreciating the fact that these two economies are providing an increasing percentage of the world’s oil supply. You can get some broad exposure to each market through ETF’s like SPDR S&P Russia and iShares MSCI Canada.

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