Agriculture stocks have been experiencing a downturn due to declining crop prices and high costs associated with interest rates. This may offer an opportunity to get into some undervalued agriculture stocks looking to gain from precision agriculture. However, a little patience may be worth the wait as the U.S. Department of Agriculture predicts a 23% drop in farmer incomes this year following last year’s boom.
Although the short-term potential for some of the market’s most undervalued agricultural stocks is not too bright, some players are strategically positioned to benefit from precision agriculture. Farmers may still hold off replacing their aged fleets in hopes of better interest rates, but this could change soon. Not only must they upgrade their fleets, but the U.S. Federal Reserve is also expected to commence its rate-cut cycle next May.
Despite the economic ebbs and flows, there are still undervalued agriculture stocks which appear well-poised to harvest long-term gains.
CNH Industrial N.V (CNHI)
Despite facing difficulties in the market, CNH Industrial’s (NYSE:CNHI) net income rose slightly from $566 million to $567 million year-over-year in Q3 2023. The company simplified its corporate structure into a sole listing on the NYSE to focus its resources and reduce costs. As a short-term play, CNHI may not be a good bet as one of the top undervalued agriculture stocks to harvest long-term gains.
Trading at a PE ratio of 6.2x, significantly lower than the S&P 500’s 24.6x, CNH Industrial appears as an undervalued agriculture stock down 33% year-to-date. Despite the challenging market conditions, the company saw a 2% increase in net income year-over-year (YOY). It also anticipates a free cash flow between $1 billion to $1.2 billion this year. And, the company expects sales to increase between 3% to 6%.
Recently, Fitch Ratings affirmed CNH Industrial at BBB+ with a stable outlook, indicating a reasonably solid investment grade. The company exhibits a sound balance sheet, margin expansion and growth opportunities, making it appealing at a bargain valuation.
Deere & Co. (DE)
Deere & Co’s (NYSE:DE) net income rose 5% YOY in the most recent quarter despite market headwinds. While anticipating a sales decline next year, it increased profit this year and plans to focus on cost reduction.
Deere & Co has a PE ratio of 10.5x, less than half of the agricultural average of 24.3x. Its stock is also down 15% YTD, presenting a promising undervalued agriculture stock to buy and hold. The company expects volumes to return to mid-cycle levels next year.
While the near-term agricultural economy presents challenges, Deere’s long-term prospects make the agricultural stock attractive for patient investors seeking value and growth.
AGCO Corp (AGCO)
AGCO Corporation (NYSE:AGCO) is another long-term agriculture stock ready to harvest growth. It has a PE ratio of 7.4x, and its stock is also down this year by about 18%. Interestingly, that is despite the company expecting improved sales in 2023. Despite the ongoing conflict in Ukraine impacting farmer sentiment, it expects only a modest decline in retail tractor demand compared to 2022.
The company’s annual revenue has consistently increased over the past few years. In 2023, AGCO reported a revenue between $1.3 billion to 1.4 billion in precision Agriculture. This follows a steady growth pattern, with a 21% increase in quarterly dividends seen as adding to the optimism of long-term growth.
AGCO also aims to boost productivity through precision technology, which allows farmers to use smart solutions to optimize crop yields. By leveraging innovations for sustainable agriculture, AGCO helps farmers reduce costs and increase efficiency.
On the date of publication, Stavros Tousios 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.
