Agriculture companies often get overlooked by investors, which is unfortunate because there are a lot of growth opportunities in the agriculture and agri-food space. Agriculture and food, after all, are enormous parts of the U.S. economy. Here’s why investors should look at a group of stocks dubbed the “top agriculture stocks 2020.”
According to the United States Department of Agriculture, agriculture, food and related industries contribute $1.1 trillion to the country’s gross domestic product. That’s a 5.4% share. American farmers alone contribute $132.8 billion, and 22 million jobs are tied to the agricultural and food sectors — 11% of total U.S. employment.
And Americans, on average, spend 13% of their household budget each year on food.
Given the size and scope of the industry, and the fact that it literally touches everybody in the country, agriculture should have a place in every investor’s portfolio. While agriculture may seem boring compared to tech and e-commerce companies, the sector is nevertheless one that investors can depend on and understand. Here are four top agriculture stocks that can put some growth in your portfolio.
- Archer-Daniels-Midland (NYSE:ADM)
- Deere & Company (NYSE:DE)
- Nutrien (NYSE:NTR)
- Tyson Foods (NYSE:TSN)
Top Agriculture Stocks 2020: Archer-Daniels-Midland (ADM)
To say that Archer-Daniels-Midland is a good investment is an understatement. ADM stock trades at a discount to its historical valuation, offers an above-average dividend and has steadily grown that dividend for more than 40 years.
It’s the kind of company that value investors cherish. It’s substance over flash — and ADM stock would be a great addition to any portfolio.
And when it comes to agriculture, Archer-Daniels-Midland touches many parts of the sector. ADM is the largest publicly traded farmland product company in the United States. It processes cereal grains, oilseeds, corn and wheat. It also manufactures protein meal, vegetable oil, flour, ethanol and other food ingredients. And if you still want more, it buys, stores and transports agricultural commodities around the world.
Investors looking for exposure to agriculture and agri-food should buy ADM stock, which is currently trading at $38.84 per share. That’s considerably below its 52-week high of $47.20.
Why is ADM stock undervalued? First, factor in the broad market downturn. Then, consider Archer-Daniels-Midland’s growth rate has slowed over the past year, and company executives are selling shares.
However, the company’s fundamentals remain solid. Archer-Daniels-Midland’s first-quarter earnings per share rose 39% to 64 cents, beating estimates by 8 cents. The company also ended the first quarter with more than $26 billion in current assets, including $4.7 billion in cash and equivalents. Total debt stood at $12.7 billion.
When it comes to its dividend, Archer-Daniels-Midland is a true “aristocrat.” After increasing the dividend by 2.9% for its March payment, its dividend growth streak reached 45 consecutive years. The company has grown its dividend 9.6% per year over the past 10 years, which is very impressive and should be attractive to any long-term investor.
Deere & Company (DE)
Since it bottomed in March, John Deere’s stock has kept pace with the S&P 500 — rebounding 36%. The stock is now trading right around $150 a share, and many analysts are bullish that there’s more room to run. DE stock is likely to exceed its 52-week high of $181.99
John Deere is, of course, the brand name of Deere & Company, which manufactures heavy equipment for farming, agriculture and lawn care. The company also makes axles, transmissions and gearboxes for heavy equipment that is used by farmers. The John Deere logo, distinctive green and yellow colors, and slogan “Nothing runs like a Deere” are familiar to most Americans. It’s fair to say that John Deere is a household name and there is tremendous brand loyalty among consumers.
And John Deere has been performing well in recent years. Revenues grew 32% between 2017 and 2019, with net margins expanding from 7.3% to 8.3% over the same period. Yet DE stock has been sluggish over the past two years — even before Covid-19 sent prices down hard. The stock stalled largely due to a drop in crop prices that hurt farm incomes and discretionary spending on equipment, as well as a downturn in sales of construction-related equipment.
But DE stock could move higher as the U.S. economy recovers and farms regain confidence. CEO John May predicted earlier this year that the advanced age of U.S. agricultural equipment will lead to a replacement market and demand for aftermarket servicing.
A total of 11 Wall Street analysts have issued 12-month price targets for DE stock, with calls ranging from a low of $145 per share to a high of $182. The consensus rating on the stock is buy.
Nutrien is a Canadian fertilizer company — but there’s way more to the story. Nutrien is the largest producer of potash and the third largest producer of nitrogen fertilizer in the world. The company has 2,000 retail stores, more than 20,000 employees and a market capitalization of $25 billion. It’s one of the biggest agriculture companies in the world.
The company’s stock bottomed below $24 in March and has since recovered to $33. However, NTR stock remains below its 52-week high of $55.25. Like other agriculture companies, Nutrien pays a strong dividend to shareholders. On July 17, the company will pay a dividend of 45 cents a share. In the last year, the company distributed a total of $1.80 to shareholders.
Nutrien is also poised to capitalize on a spike in world food demand, which is forecast to increase significantly in the next 30 years. Forecasts indicate the global population will grow from roughly 7.8 billion in 2020 to nearly 10 billion by 2050, meaning more demand for food and the fertilizers used to grow it. Nutrien is also benefiting from a recent jump in online sales caused by the pandemic lockdowns.
There’s currently a consensus buy rating on NTR stock, with a high price target of $62 per share — a potential 33% increase over the current share price.
Tyson Foods (TSN)
Investors interested in agri-food need look no further than Tyson Foods. The Arkansas-based company is the world’s second largest processor and marketer of chicken, beef and pork, and it exports the largest percentage of beef outside of the United States each year. Tyson Foods also owns major food brands such as Jimmy Dean, Hillshire Farm, Ball Park and State Fair.
The company has received criticism over the years for its treatment of animals and pollution record, and was especially hard hit by the Covid-19 pandemic. The disease ran through its processing plants, killing several employees in the process. If that weren’t enough, the U.S. Department of Justice recently implicated Tyson Foods in a price-fixing scheme. Tyson Foods was quick to respond and has been cooperating with federal authorities in the case in exchange for leniency.
TSN stock fell nearly 50% during the pandemic’s peak in March and April. And its recovery has been slow. TSN stock looks attractive at $58.28 a share, well below its January peak of $94.24. And the company’s financials point to a potential bounce. Analysts forecast that, over the next five years, Tyson Foods’ average earnings will increase by 14% a year. Over the last year, prices for meat, poultry and fish rose by 10%, according to the Bureau of Labor Statistics.
As with other companies on this list, Tyson Foods has treated shareholders well over the years, with an annual dividend of $1.68 per share. Tyson Foods has raised its dividend 12% over the past year, and the percentage of profits going to the dividend payout is nearly 40%, which is extremely generous. Investors with a long-term horizon who seek dividend income should definitely consider buying TSN stock.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia. As of this writing, Joel Baglole did not hold any stock of the aforementioned companies.