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American Vanguard Corp. (AVD): Profits on the Farm?

American Vanguard (AVD) is a maker of specialty chemical products for agricultural and commercial uses, primarily on American farms. The company manufactures and formulates chemicals for crops, human, and animal protection. These chemicals include insecticides, fungicides, molluscicides, growth regulators, and soil fumigants in liquid, powder, and granular forms. In addition, American Vanguard distributes various pharmaceutical and nutritional supplement products, as well as offers environmental consulting services.

Earlier this month, the company declared a semiannual cash dividend of three cents per share. The dividend came on the heels of a five-cent a share dividend earlier this year, showing investors the company’s cash position is healthy. In August, American Vanguard said second quarter earnings rose to $4.3 million, or 16 cents per share, compared with $3.6 million, or 13 cents per share, in the second quarter of 2007. The company attributed the growth, in part, due to increased demand from farm customers in Mexico.

To bolster its farm chemicals both in the U.S. and abroad, American Vanguard has been a steady buyer of chemicals businesses from other companies, including acquisitions last year from BASF and Bayer AG. Noteworthy is the fact that American Vanguard’s bottom line is bolstered by congressional subsidies to American farmers, which can number in the billions of dollars. Competitors include Aceto Corp., FMC Corp. and the privately held Dow AgroSciences LLC.

As global demand for commodities continues to surge, California-based American Vanguard should reap the benefits. The company had 2007 sales of $224.5 million and a profit margin of 8.5 percent. Corn, in particular, could prove to be a profitable niche for the company as growers race to meet the higher demand created by ethanol development.

American Vanguard shares closed at $14.80 on Monday and have traded between $9.84 and $20.30 over the past 52 weeks. The company has 26.6 million shares outstanding, with almost 33 percent held by insiders and almost 61 percent held by institutions. American Vanguard has a market value of $393.6 million.

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