- Andersons (ANDE): Andersons recently set record EBITDA numbers due to strength in its nutrient segment.
- Bunge Limited (BG): The company’s tight crop supply and storage facilities are significant value-adds in the current market climate.
- Yield10 Bioscience (YTEN): Gain offerings, an improved IP portfolio and earnings growth could result in a stock price surge.
Wheat holds a lot of price elasticity due to its constant demand and fluctuating supply. The current ex-Russia supply narrative has caused wheat futures to surge by more than 35% since the turn of the year because of fears that Black Sea inactivity could lead to a prolonged short supply.
Russia and Ukraine have a pivotal role to play when it comes to feeding the world; Russian wheat exports account for 23.92% of global supply while Ukraine facilitates 8.91%. It’s unlikely that the wheat market’s structure will remain the same after recent events, and it’s possible that much responsibility will be placed on North America’s private sector to fill the void left by inactivity in the Black Sea region.
I don’t think restructuring global wheat production will be too difficult, but it will take time, because the commodity takes four to eight months to harvest, thus making it difficult to increase production capacity promptly. It’s for this reason that I anticipate Wheat to sustain its price levels of around $10 per bushel.
After a thorough search, I found three stocks that look set to prosper during this period of market restructuring.
This stock is somewhat of a pure-play. Andersons (NASDAQ:ANDE) engages in wheat logistics, marketing and nutrient activities. ANDE is an investment for someone that’s looking for a low-risk-high reward investment product as it has a beta of only 0.64 but has has returned just under 100% in the last year.
Andersons beat its fourth-quarter earnings estimates by 47 cents per share due to strength in its nutrient business. The company set a quarterly adjusted EBITDA (earnings before interest, taxation, depreciation and amortization) record when it reached $130.5 million. The prospect of surging regional wheat market activity suggests that Andersons could improve on its earnings numbers in 2022, in turn, providing lucrative residual to its shareholders.
ANDE stock is trading at an eight times price to sales discount relative to the sector, conveying that the market hasn’t priced the stock’s topline potential. Additionally, Andersons non-GAAP trailing twelve months price to earnings is trading at a 15% sector discount, suggesting that it holds value in abundance.
Bunge (NYSE:BG) provides exposure to the storage, transport and processing of commodities, which could be pivotal during a time of supply-chain bottlenecks. The stock has returned more than 20% since the turn of the year with a beta of only 0.54, indicating a solid risk-return profile.
Recently, the company beat its fourth-quarter earnings target by 62 cents per share and outpaced revenue estimates by $1.19 billion. The firm could benefit from its grain trading segment during the next few quarters as its inventory will likely have gained a substantial amount of value during the recent commodity price surge. I also believe its tight crop supply will yield significant financial results due to bullish forward curves.
The stock is trading at a sector relative price to earnings discount of 56% and a price to earnings growth ratio of only 0.11, indicating that BG stock is undervalued at its current price. Additionally, BG stock has formed a momentum pattern by trading above its 50-, 100- and 200-day moving averages.
Yield10 (NASDAQ:YTEN) isn’t an established pure-play commodity stock but rather an innovative enterprise seeking to disrupt the crop yield space. The company could benefit from wheat producers’ profitability as it sells a range of ancillary products. Yield10’s plant gene modification methods hold novelty, and it’s said that much of its emphasis is placed on grains with its CRISPR/Cas9 tool.
The company surprised the market with its fourth-quarter results when it beat revenue estimates by nearly $55 thousand and earnings forecasts by 3 cents per share. The key value drivers for Yield10 have been its commercial expansion in the renewable diesel market, expansion of its intellectual property portfolio and progress in its seed scale-up program.
It’s anticipated that YTEN will experience revenue growth of 1.25 times during the next year and that it will monetize its product range much better than in the past. Due to its ancillary nature, the wheat price surge could act as a benefactor to YTEN stock, thus prompting me to be bullish on the stock.
On the date of publication, Steve Booyens did not hold any position (either directly or indirectly) 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.