American Vanguard Corp.: Pest-free investing

Successful investors accept the world as it is, and don't try to contort situations to fit an idyll of what it should be. Consider farming: for those of us outside the realm, the economics can be as foul-smelling as an industrial cattle feedlot; what, with the subsidies, tariffs and usage quotas (think ethanol).

So what's an investor to do? Eschew the sector or deal with the world the way it is and inhale deeply. We prefer the latter action. From the inside, subsidies, tariffs and usage quotas can be as fragrant as French perfume, and we find the fragrance emanating from Newport, Calif.-based American Vanguard Corp. (NYSE:AVD) to be particularly intoxicating, though on first whiff you might think otherwise.

AMVAC is a small-cap purveyor of insecticides, fungicides, molluscicides, growth regulators and soil fumigants. Although it doesn't benefit directly from government handouts, its customers do.

AMVAC's niche of protecting soil-grown edibles from lower-form freeloaders is a fragmented, diverse market, requiring significant management input and ongoing product research. What's more, it's dominated by mature lower-margin commodity chemicals.

So what's the good news? Large chemical companies tend to be eager sellers of mature lower-margin commodity chemicals, and eager sellers create opportunity. AMVAC's strategy is to acquire these segments from multi-billion dollar conglomerates. In March, AMVAC acquired most of Bayer's cropscience assets related to its facility in Marsing, Idaho.