Art's-Way Manufacturing: Harvesting profits in fertile soil

There may be “nothing new under the sun,” but many of the best investments over the past five years have been in renaissance sectors: energy, precious metals and agriculture come readily to mind.

Although Art's-Way Manufacturing Co. Inc. (Nasdaq: ARTW) isn’t the newest thing under the sun, it’s a company that's experiencing nothing short of a renaissance. The Armstrong, Iowa-based microcap, named for founder Arthur Luscombe, has existed since 1956, manufacturing and selling portable and stationary animal-feed processing equipment used to mill and mix feed grains into custom animal feed rations. Adjunct businesses include pressurized vessels and tanks and modular buildings for “animal containment and various laboratory uses.”

Farm-equipment manufacturing is notoriously cyclical, as are most businesses tethered to commodities. Art's-Way is affected by factors peculiar to the farm equipment field, including fluctuations in farm income resulting from changes in commodity prices, crop damage caused by weather and insects, and government farm programs, as well as general systematic factors like GDP growth and interest rates.

For the most part, these factors have been cycling to Art's-Way's favor. Interest rates have been cycling down over the past six months, thanks to the Federal Reserve's continual efforts to stimulate a droopy (though still growing) economy. Meanwhile, incomes have been cycling in the opposite direction. In February 2007, the U.S. Department of Agriculture pegged net-farm income for the year at $66.6 billion, up from $59 billion in 2006. By August 2007, the USDA raised its projection to a record $87.1 billion.

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