- Mosaic (MOS) produces key nutrients and minerals to grow food around the world.
- Archer-Daniels-Midland (ADM) is a world-leading food and beverage producer, including in grains, cocoa and animal feed.
- Deere (DE) produces the necessary machinery for sustainable growth in agriculture.
The world is suffering a major price shock at the moment, as inflation continues to climb higher. That inflation is being felt in all sorts of sectors and industries at the moment, from gas to semiconductors to food prices. As food prices continue to move higher, agriculture stocks have been placed in focus.
The geopolitical turmoil in Eastern Europe isn’t helping matters. Given how much Russia and Ukraine export in regards to certain agricultural products — like fertilizer and wheat — supply shocks are driving up prices.
Not only have agriculture stocks been in focus from an inflation perspective, but they’ve been in focus as the stocks continue to trade incredibly well. For the most part, the first quarter of 2022 has been filled with volatility. It has left equities in a jumbled mess, while many investor favorites (particularly in tech) have felt the heat. However, that’s not the same situation when I look at agriculture stocks. Companies like Deere (NYSE:DE) and Archer-Daniels-Midland (NYSE:ADM) are trading well. Basic material companies — like Mosaic (NYSE:MOS) — continue to rack up the gains too. Fertilizer companies, miners and even grocery store stocks are doing well.
When operating in volatile times and bear markets, investors have to find where the bull market is. In this case, one such bull market is in agriculture stocks.
For those that were around in the 2006 to 2009 era of trading, they likely remember Mosaic as part of the group of stocks that saw explosive upside gains. The company — along with other potash suppliers — saw its share prices explode higher, then drift lower for the better part of a decade.
In fact, from 1990 until 2020, Mosaic stock climbed just 17.5%. In between there was plenty of volatility and disappointment.
But we’re not focused on the last 30 years. Instead, we’re focused on the now — and right now there is plenty of demand for Mosaic’s products. With the war in Eastern Europe dragging on, farmers need to find fertilizer and nutrients to grow their crops. That in turn is driving up costs.
Just last month, the company reported that its January and February potash sales more than doubled year over year. Phosphates revenue climbed almost 40%, while Mosaic Fertilizantes revenue climbed 102%.
As it stands, analysts expect revenue to jump about 50% this year and earnings to climb 120%. Will that momentum last forever? No, but it’s here for the moment.
Unlike Mosaic, Archer-Daniels-Midland is not seeing an explosive move in its revenue and earnings estimates. In fact, analysts expect modest, single-digit growth expectations in 2022.
However, that didn’t stop Archer-Daniels-Midland stock from enjoying a major breakout in January and rallying more than 40% since that move. Can it continue higher solely on the stock’s momentum? Yes. Will it continue forever? No.
Sometimes, it really is as simple as that. Archer-Daniels-Midland stock pays a modest 1.7% dividend yield and despite the enormous rally it has enjoyed, shares trade at just 19 times this year’s earnings.
So far, dips the 21-day and 10-week moving averages continue to hold as support. Look for that to be the case going forward. If the trend breaks, then this stock may very well need some time to digest. Otherwise, $100-plus remains in play.
Last but not least, we have Deere. The company is the leader in agriculture machinery. Just when investors expect this company to cool off, management finds a way to deliver. Sometimes that’s with better-than-expected earnings. Other times it’s with an increased full-year outlook.
Recently though, Deere stock just broke out of a year-long consolidation. Shares were trading between $325 and $400 for roughly one year and have now broken out over the latter. Even better, it’s holding up above $400 on the recent dip.
What investors seem to forget is, Deere stock rallied like a tech stock out of the 2020 low. Shares climbed almost 300%, but instead of cratering after the rally like many growth stocks, it entered a long-but-needed consolidation phase.
For 2022, analysts expect roughly 20% revenue and earnings growth. Even better, the latter is forecast to climb another 15% in 2023. Farmers are more in demand than ever and with that increase in demand comes an increasing need in tools and machinery.
That’s going to bode well for Deere and other agriculture stocks going forward.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.