One Guy's Investments: Amber Waves of Cash Money

I heard an adviser today on Bloomberg Radio -- unfortunately, I tuned in too late to catch his name, but he had a very interesting investment thesis that I thought I should explore a little bit.

He essentially said that though the rust belt is suffering, the farm belt is booming -- and clearly, the two are linked somewhat, especially in the middle when you look from Ohio through Michigan, Indiana and Illinois, and I guess, if you're going by farming revenues, the farther West you go in the Midwest the stronger the economy is likely to be.

But although we've all heard this phenomena, of course, he had a slightly different take on it. The conventional wisdom, over the past few months, has been that the windfall corn profits that are in part a result of the ethanol boom are going to be reinvested in the business, in the form of John Deere (DE) and CNH (CNH) farm equipment, bought at places like Tractor Supply (TSCO).

And there's the second, more direct form of reinvestment, too -- consumables. So that's a big part of the reason why shares of Terra Nitrogen (TNH), Potash (POT), and the other fertilizer companies are booming, since a couple years of bumper corn crops are likely to mean the soil needs an above average amount of fertilizer for wheat next year (or whatever) ... along with Monsanto (MON), Syngenta (SYT), and all their peers in the seed business.

But this is the next step: What if the farmers are just like the rest of us? If Joe Coldcall takes his Wall Street bonus and hits up Tiffany's for a new Rolex, or Bobby Oddlot gets a raise and puts a flat screen TV on layaway at Walmart, what is Johnny Cornseed going to do with his newfound affluence?

So this analyst had a couple ideas: He speculated that the farmers who are experiencing this boom are going to indulge their favorite pastimes, hunting and fishing. And he picked Cabela's (CAB) and Gander Mountain (GMTN) as likely beneficiaries.

Makes some good common sense, no? Cabela's, like privately-held Bass Pro Shops, operates those massive big box stores that are essentially vacation destinations in themselves, with mountains and streams inside the store. Gander Mountain is similar, with less of a massive store footprint but the same kinds of goods and services.

Of the two, Cabela's sounds a bit more appealing to me, since their shares just took a 20% haircut on reduced margins and their geographical spread is more friendly to this investment thesis -- my very brief look tells me Gander Mountain is more rust belt, Cabela's more farm belt, though that's a judgement call just from looking at their store maps.

So what else might be appealing? Well, if you think the farmers are going to want to reward their families after a long summer of driving air conditioned mega tractors and the toil of a busy harvest season, maybe you'll want to look at the local tourism industry -- that might bring you to check out Cedar Fair (FUN), which is a nice high yielder but has certainly had its troubles and had some weak attendance numbers this year -- their original parks, like Cedar Point in Ohio, are still very popular, or Great Wolf (WOLF), which runs those huge family resort lodges that include indoor water parks (something that we know is popular in the midwest, after starting in the Wisconsin Dells ... in the rest of the country, it seems to me that the jury's still out).

And after that? Well, I guess you could go with some restaurants or movie theater chains, if you think high prices for corn are going to make farmers more likely to splurge just a bit. Buffalo Wild Wings (BWLD) had been a popular pick for quite some time, and their greatest density is in the Midwest (though more Ohio than Iowa, unfortunately). For movies you might look at Carmike (CKEC), which is nationwide but is certainly more focused on the South and Midwest than on the coasts, and which is primarily a chain of theaters in small cities and towns (they aim to serve population centers of 100,000 or less). I'm not particularly crazy about either of those, personally.

So what else do farmers and newly flush farm employees spend money on? And, perhaps more importantly, are there companies that are going to see improved business from the farm economy that are also unlikely to suffer from the massive problems in the manufacturing economy, especially the Michigan auto industry? Anything that might move the needle? I certainly don't know, and from my perch in Washington, DC one might reasonably be quite suspicious that I can't tell the wheat from the chaff, but it might be a theme that's worth exploring.