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If there's one thing I learned during my two decades as a journalist, it's this: You can use the news to fatten your wallet.
It's a lesson we've put to good use here at Money Map Press, and was the driving philosophy behind the creation of Money Morning – our daily "news you can profit from" financial news service.
And it's a lesson that we're reminded of again and again.
The most recent reminder came late last week.
With palm oil.
Back on April 10, Permanent Wealth Investor Editor Martin Hutchinson told Private Briefing subscribers to take a look at the Kuala Lumpur-based Sime Darby Berhad (OTC PINK: SMEBF) – Malaysia's leading conglomerate.
The 100-year-old Sime Darby engages in property development and management, industrial distribution (it's an agent for Caterpillar Inc. (NYSE: CAT), a successful global player itself), motor vehicles (as an agent for BMW, Ford and Hyundai, among others), energy, healthcare and plantations.
And it's the plantations segment that has our attention right now.
You see, Sime Darby's plantation segment specializes in rubber production and palm oil, with a land bank of 630,000 hectares.
And when he first told me about the company back in April, Martin was predicting that palm oil prices were poised to skyrocket.
Late last week, that prediction started to come true. Sime Darby shares were surging – and I was dialing Martin at his office in New York State to get an update.
"What's happened here, Bill, is that Malaysia has slashed export taxes on palm oil to zero," Martin explained. "The expectation is that this will reduce a local glut, and will also touch off competitive reductions by other countries. And this is massively bullish for palm-oil prices."
The global market for palm oil is massive – much bigger than U.S. investors realize. Last year alone, in fact, the two top producers – Indonesia and Malaysia – took in more than $40 billion in revenue from the substance, which most Americans refer to as "cooking oil."
But there's been one problem: The market has been "imbalanced" (with big gluts) for a long time.
Malaysia, the world's No. 2 producer of palm oil, finally decided to do something about the current glut. Faced with record stockpiles, Malaysia last week slashed export taxes to zero. Analysts believe that inventories will plunge 16% to 2.2 million metric tons by March. Prices will soar by almost that same amount by the end of the quarter.
Sime Darby shares jumped more than 7% on Friday, with more to come.
Earlier this month, Moody's Investors Service just rated Sime Darby's debt for the very first time – giving it an issuer rating of A3 with a stable outlook. But it's what Moody's said about the company that we found most interesting – because it lined up perfectly with what Martin said when he recommended the stock last year.
The Moody's rating recognized "the strong cash flow generated by [Sime Darby's] core oil-palm plantation business, which has long-established operations in Malaysia and Indonesia." The remaining 45% to 50% of Sime Darby's cash flow comes from its industrial and motor-vehicle businesses.
The industrial unit sells heavy equipment to coal miners and construction companies in Australia, China and other parts of Asia. The motor-vehicle business is involved with auto assembly, distribution and sales – with a special focus on high-end cars in China, Malaysia, Singapore and Hong Kong.
"Sime Darby is the largest listed palm oil plantation company and it is well-balanced in terms of upstream output and downstream refining and oleo-chemical capacity and its crop yields are among the best in the industry," said Alan Greene, a Moody's vice president who is also the lead analyst for Sime Darby. "Relative to other agribusinesses, the credit profile of palm oil is attractive given its position as the lowest-cost vegetable oil, its high resistance to pests and diseases and the relative consistency of output over a period of 10 to 15 years once the trees reach maturity."
The company's revenue base is geographically well-diversified, with Malaysia, China and "Australasia" accounting for 69% of its fiscal 2012 revenue, Moody's said.
[Editor's Note: We recommend investors employ a 25% "trailing stop" on all holdings.]