Before the Russia-Ukraine War, Russia was the world’s largest supplier of fertilizer, while Russia and Ukraine were, respectively, the world’s largest and fifth-largest exporter of grain. With Russia blockading Ukraine’s direct access to waterway routes and much of the world refusing to buy Russia’s fertilizer, now is a good time to buy agriculture stocks.
And as the world’s largest exporter of fertilizer is being prevented from selling anything to many countries, the prices of fertilizer have been volatile. As a result of course, U.S. and Canadian fertilizer makers are very well-positioned.
Meanwhile, food prices have also surged, benefiting many farmers. Those prospering farmers, in turn, will look to harvest more land and upgrade their equipment in order to make their farms more productive. Both of those trends should boost the financial results of the companies that make farm equipment.
And while farmers will, of course, be hindered by higher fertilizer prices, huge demand for and the high prices of their crops, along with eventual increases in the supply of fertilizer, should still enable the vast majority of them to do very well. Let’s have a look at the best seven agriculture stocks to buy in the current environment:
|DE||Deere & Company||$355.02|
|CNHI||CNH Industrial N.V.||$14.80|
|MOS||The Mosaic Company||$56.80|
|CF||CF Industries Holdings, Inc.||$89.84|
|IPI||Intrepid Potash, Inc.||$60.57|
|TSN||Tyson Foods, Inc.||$87.31|
|KROP||Global X AgTech & Food Innovation ETF||$17.72|
Before the Ukraine-Russia War, the U.S. was the world’s second-largest exporter of wheat, behind Russia. With much of the world refusing to buy wheat from Russia, American wheat farmers will be able to sell much more grain at much higher prices than previously.
Indeed, Peter Zeihan, a “”Geopolitical strategist,” addressing U.S. farmers, said in April, “This is your time.” He noted that “first- and fourth-largest wheat producers” in the world have been largely cut off from the world, while “fertilizer (is) too expensive for a third of the world’s farmers.”
U.S.-based agricultural equipment maker Deere (NYSE:DE), which “was the world’s largest farm machinery manufacturer in 2021,” is very well-positioned to benefit from the prosperity of wheat farmers in the U.S. and other Western countries.
Indeed, the company reported stronger-than-expected fiscal second-quarter results on May 20, and it expects to generate $7 billion to $7.4 billion of net income in its full fiscal year.
Yet DE stock is trading at a forward price-earnings ratio of only 14.0.
CNH Industrial (CNHI)
In a column on CNH Industrial (NYSE:CNHI) stock, another large agricultural machinery maker, Seeking Alpha contributor Luca Socci noted that the company is well-positioned to benefit from the strong global trends of rising populations, a lack of farmable land, and a shortage of farm labor. All of those ongoing developments are likely to push farmers to use more machinery to increase their productivity.
According to GIS, “A few countries are pocketing hefty rewards due to soaring prices and have increased their exports – among them India, the United States, Brazil and Argentina. ”
Given CNH’s strong presence in both North America. and South America it is one of the three top agricultural machinery players in both continents), the company is very well-positioned to benefit from rising agricultural exports in both the U.S. and Latin America.
Fertilizer maker Mosaic (NYSE:MOS) was recently named by Bank of America as one of three companies in the sector whose stocks should be bought.
Bank of America expects China to continue its ban on fertilizer makers beyond the scheduled halt this year, and the firm thinks this development will benefit Mosaic and its peers. Bank of America set an $85 price target on MOS stock.
Mosaic’s first-quarter results, reported on May 2, narrowly missed analysts’ average outlook. However, its revenue soared 74% year-over-year to $3.92 billion, and its EBITDA, excluding some items, more than doubled year-over-year to $1.45 billion, as its gross margin per ton of fertilizer more than quadrupled YOY to $323.
MOS stock also throws in a 1% dividend for investors, and the shares are trading at a ridiculously low forward price-to-earnings ratio of 3.9.
CF Industries (CF)
Like Mosaic, CF Industries (NYSE:CF) was identified by BofA as one of three fertilizer stocks to buy.
On June 2, research firm Piper Sandler increased its price target on CF stock to $132 from $120. According to the firm, “grain prices will ‘both remain elevated and reset the standard for midcycle levels going forward,’ The Fly reported. Piper maintained an “overweight” rating on CF stock.
“The world’s largest nitrogen fertilizer” producer, CF on May 20 predicted that prices of the fertilizer would stay high until “at least” 2024, Seeking Alpha quoted Bloomberg as reporting. Additionally, despite the elevated prices, farmers’ demand for nitrogen remains strong, a CF executive told Bloomberg.
On May 19, UBS named CF stock as the second-best stock in the market for investors to own in the event of a recession.
The forward P/E ratio of CF stock is only 5.0.
Intrepid Potash (IPI)
Historical tidbit: potash was the first U.S. patented industrial chemical, with that distinction granted by President George Washington in 1790.
In a recent article, The Financial Times reported that “as sanctions throttle supplies of (potash) from Russia and Belarus, which account for almost 40% of global supply, buyers are scrambling for cargoes.”
The newspaper added that, “In Brazil, an agricultural powerhouse, prices have surged 185% over the past year hitting records above $1,100 a tonne, according to commodities consultancy CRU. In Europe they are up 240 per cent to 875 euro a tonne. ”
Not surprisingly given these price increases, Intrepid Potash’s first-quarter results jumped tremendously versus the same period in 2021. Specifically, its revenue came in at $104.4 million, up from $71.5 million in Q1 of 2021. Moreover, it reported Q1 cash flow from operations of $34.1 million, versus $19.1 million during the same period a year earlier.
Tyson Foods (TSN)
The company, which sells a variety of meat products, recently raised its full-year sales forecast as “meat demand remains resilient to inflation.”
That trend should continue, as the vast majority of people in America — historically a meat-loving nation — would not willingly give up or even cut back on meat consumption. And, given the huge amounts of money Americans as a whole have saved in the last couple of years and the fact that the employment market remains very strong, they can afford to pay higher meat prices. As a result, I expect Tyson’s profits and growth to continue to be very strong, no matter what happens to the inflation rate going forward.
So it’s not surprising that Tyson on May 9 increased its 2022 revenue outlook to $52 billion-$54 billion from $49 billion-$51 billion previously. Additionally, the company’s fiscal Q2 results came in significantly above analysts’ average outlook.
The forward P/E multiple of TSN stock is just 10x, and the shares have an attractive dividend yield of 2%.
Global X AgTech & Food Innovation ETF (KROP)
Another way to play the dynamics of agriculture is via Global X AgTech & Food Innovation ETF (NASDAQ:KROP). The thematic exchange-traded fund invests in the stocks of companies viewed as “advancing innovation and the use of technology in the agriculture and food industries.”
The 30 stocks in the fund’s portfolio are leaders in ag-tech, precision growing, robots and automation for both arable and livestock farming, as well as connected agriculture.
KROP stock debuted less than a year ago. Though still a relatively small fund, with net assets of $6.38 million, the expense ratio for investors is average, at 0.50%, and currently pays a 30-day SEC yield of 0.34%.
It tracks the Solactive AgTech & Food Innovation Index, and includes several of our other six picks in its holdings — including Deere and CNH Industrial — along with a handful of China-traded stocks. Food alternatives Oatly Group (NASDAQ:OTLY) and Beyond Meat (NASDAQ:BYND) are among the ETF’s top five.
Morningstar’s Crowd Sense metric — which focuses on “the level of attention an investment has attracted” and changes over time, as well as the appeal of its fundamentals — rates it “high” on attention and “medium” on appeal. Attention was falling at the start of the year, but shot up in February as Russian troops were rolling into Ukraine. The attention level has remained steady, in Morningstar’s assessment, since then.
On the date of publication, Larry Ramer 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.