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How Investors Can Cash in on FrankenCorn

I am no fan of processed foods or hormone-laden milk. And I admit that I still have a hard time purchasing odd hybrid produce like a grapple.

But considering the growing global demand for food and the socioeconomic benefits of having that food abundant and affordable, it’s a no-brainer that genetically modified crops will be commonplace in the next decade or two.

That means a possible opportunity for investors.

To be clear, genetically modified crops already exist in abundance. They don’t have to be weird frankenfood; they can simply come in the form of drought-resistant or pest-resistant strains of existing crops. In fact, some of the biggest names in agriculture have achieved prominence thanks to their GM offerings.

Monsanto (NYSE:MON) produces “Roundup Ready” seeds that allow farmers to spray its branded weed fighters liberally and not kill the actual crops. Syngenta (NYSE:SYT) produces special seeds including aphid-resistant soybeans that naturally ward off pests. There are others, but these two are the big boys and collectively have a market capitalization close to $100 billion.

These companies have significant room for upside if the GM trend continues. After all, efficiency and high yield in farming is crucial — especially to emerging markets.

Consider that Toronto’s Globe and Mail recently reported that genetically modified crops surged in Brazil for the fourth year in a row, and that last year “GM crop-areas grew an amazing 21 per cent over 2011.”

But there are risks. Opposition to allowing GM foods is substantial among some Western consumers based on health fears, and the recent surge of interest in organic produce proves that farmers can make good money by taking the opposite route. Consider this chart from the USDA showing sales continue to soar and that future demand is expected to stay strong.

Furthermore, ugly frankenfood headlines can’t be discounted. Consider this report that Syngenta tried to cover up livestock deaths that were associated with bioengineered corn. All you need is a few more stories like this to create a big threat to the industry.

And even if GM foods are approved and become widely distributed globally, there’s no guarantee that Syngenta or Monsanto are the right stocks to play this trend. The Financial Times recently reported that developing economies are now home to more than half of the world’s genetically modified crop area. If the West doesn’t want these foods and emerging markets do, the corporations in these regions could be the ones to prosper.

Still, it’s worth watching Monsanto and Syngenta until another heavyweight emerges. Or, if you want to hedge your bets, the Market Vectors Agribusiness ETF (NYSE:MOO) is a decent fund, since it has top positions in these two plays, along with fertilizer giant Potash (NYSE:POT), tractor icon Deere & Co. (NYSE:DE) and other related stocks.

One of the few things we can count on is hungry human beings buying food — and investors who want to play this megatrend have no better way to buy into this phenomenon than these agribusiness players.

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Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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