SPECIAL REPORT The Top 7 Stocks for 2024

3 Agriculture Stocks to Buy for the Coming Food Shortages

Advertisement

  • These are the agricultural stocks to buy for food shortages and can deliver multi-bagger returns.
  • Adecoagro (AGRO): Diversified agricultural commodity business with healthy revenue growth.
  • Hydrofarm Holdings (HYFM): Positioned to benefit from controlled agriculture farming and the growth of the cannabis industry.
  • Corteva (CTVA): EBITDA margin expansion visibility coupled with revenue growth backed by a focus on biologicals.
agriculture stocks to buy for food shortages - 3 Agriculture Stocks to Buy for the Coming Food Shortages

Source: Shutterstock

It’s said that wherever there are challenges, there exists an opportunity. This holds true for the global agriculture industry. With factors of water shortage and uncertain climate conditions and geopolitical tensions, global food shortage is a big challenge in the coming decades. The government sector is working in sync with the private sector to address the potential shortages. There are therefore interesting in agriculture stocks to buy for food shortages.

Elaborating on the challenge, more than 345 people face high levels of food insecurity in 2023. That’s more than double the number in 2020. This problem will continue to aggravate with climatic conditions being the biggest challenge.

Companies are trying to navigate this challenge through innovation. Hydroponic farming is a good example as it utilizes significantly lesser water than traditional farming methods. With similar opportunities, let’s discuss three quality agricultural stocks to buy for food shortages.

Adecoagro (AGRO)

red tractor in yellow field with clouds behind it
Source: Shutterstock

Adecoagro (NYSE:AGRO) is one of the best agricultural stocks to buy for food shortages. AGRO stock has trended higher by 42% year-to-date. However, at a forward price-earnings ratio of 13, the stock remains undervalued. Further, a dividend yield of 2.99% is attractive.

As an overview, Adecoagro operates in the sugar, ethanol, dairy, and other agricultural products business. For Q1 2023, the company reported an adjusted EBITDA of $89.2 million with an adjusted EBITDA margin of 36.4%. Weather conditions negatively impacted the EBITDA margin. However, with diversified business operations, the company’s revenue growth was robust at 20.4% on a year-on-year basis. This makes it one of those agriculture stocks to buy for food shortages.

It’s worth mentioning that the company’s debt amounted to $830 million as of Q1 2023. However, I don’t see it as a concern with EBITDA remaining robust and it implies comfortable debt servicing. Further, with land assets, leverage of 1.9 is unlikely to be a concern.

Hydrofarm Holdings (HYFM)

a picture of farmland during the daytime
Source: Shutterstock

As a provider of controlled environment agriculture equipment and supplies, Hydrofarm Holdings (NASDAQ:HYFM) stock is attractive. It’s worth noting that HYFM stock has surged by 50% from oversold levels in the last month. I believe that the rally is likely to sustain backed by positive industry tailwinds.

For the current year, Hydrofarm has guided for sales of $300 million. The important point to note is that the company expects positive adjusted EBITDA and free cash flows.

It’s worth noting that Hydrofarm believes that the total addressable market for its products is $12 billion globally. The market is expected to grow at a CAGR of 11% through 2026. Therefore, there is ample headroom for revenue growth. This will translate into operating leverage and continued improvement in key margins.

Another point to note is that the cannabis segment is a key growth driver for the company. Impending federal-level legalization of cannabis can be a key growth catalyst.

Corteva (CTVA)

A photo of various food packaging containers.
Source: Pixel-Shot / Shutterstock.com

Corteva (NYSE:CTVA) stock has been sideways in the last 12 months. A breakout on the upside seems imminent for this agricultural stock. At a forward price-earnings ratio of 19.4, the stock looks attractively valued and offers a dividend yield of 1.14%.

As an overview, Corteva operates through two segments, seed, and crop protection. From a valuation creation perspective, the following point is worth noting. Corteva reported an adjusted EBITDA margin of 18.5% for 2022. Through strategic exits, acquisitions, and investment in R&D, the company plans to boost its margin to 22% (mid-range) by 2025. This will translate into higher cash flows and healthy dividend growth. All in all, it’s one of those agriculture stocks to buy for food shortages.

From a revenue growth perspective, the company is focused on the biological market. In 2021, the addressable market for biologicals was $9 billion. It’s expected to swell to $30 billion by 2030. Therefore, there is ample headroom for growth.

On the date of publication, Faisal Humayun did not hold (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.


Article printed from InvestorPlace Media, https://investorplace.com/2023/08/3-agriculture-stocks-to-buy-for-the-coming-food-shortages/.

©2024 InvestorPlace Media, LLC