Agriculture stocks will likely be one of the biggest wealth creators in the next few decades. With agricultural produce being a necessity, the impending global food shortage will likely greatly impact sector valuation. Some of the best agricultural stocks will be 10-baggers or 20-baggers by the end of the decade.
Talking about the scale of the crisis, the number of people facing acute food insecurity has increased from 135 million pre-pandemic to 345 million in 2023. Global food shortage and conditions like drought call for bigger investment and innovation in the agriculture sector.
It’s worth adding that the world needs 165-600 million hectares more land to meet global food demand by 2050. I expect the existing agricultural land valuation to swell. Swelling good demand is positive for vertical farming. Amid these facts and industry trends, let’s talk about three agricultural stocks to buy for multibagger returns.
Adecoagro (AGRO)
Adecoagro (NYSE:AGRO) is among the most undervalued agriculture stocks to buy. Despite trending higher by 20% in the last 12 months, AGRO stock trades at a forward price-earnings ratio of 7.7. Further, the stock offers an attractive dividend yield of 3.29% and I believe that healthy dividend growth is on the cards.
As an overview, Adecoagro has agricultural land assets and is engaged in farming various agricultural products. The company’s business also includes sugar, ethanol and land transformation.
An important point is that Adecoagro commands a market valuation of $1 billion. In comparison, the market valuation of the company’s land assets is $745 million. This provides insight into the extent of undervaluation with these land assets delivering cash flows. Further, the market value will likely continue to swell.
It’s also worth noting that Adecoagro has been reporting strong quarterly numbers. For Q3 2023, the company reported an adjusted EBITDA of $155 million with a margin of 40.7%. On a year-on-year basis, margin expanded by 750 basis points. If this positive trend sustains, I expect a big rally for AGRO stock relatively soon.
Bunge Global (BG)
Bunge Global (NYSE:BG) stock is another undervalued name among agricultural stocks to buy. BG stock trades at a forward price-earnings ratio of 9.9 and offers an attractive dividend yield of 2.83%. After remaining sideways for the last 12 months, I expect a breakout rally soon.
As an overview, Bunge is a source of contact between farmers and consumers to deliver food, feed and fuel globally. The company is also a leader in oilseed processing and a leading producer and supplier of specialty plant-based oils and fats.
From a financial perspective, the first point to note is that Bunge reported a discretionary cash flow of $2 billion for 2023. Further, the company had undrawn credit facilities of $5.7 billion. Therefore, with high financial flexibility, Bunge is positioned to make significant capital investments.
It’s worth noting that Bunge announced the business combination with Viterra in June 2023. The latter has a “agriculture network connects producers to consumers with sustainable, traceable and quality-controlled agricultural products.” Considering the strong balance sheet, I would not be surprised if Bunge continues to pursue inorganic growth for expansion and diversification.
AGCO (AGCO)
AGCO (NYSE:AGCO), a manufacturer and distributor of agricultural equipment, is an attractive story to own. The stock trades at a forward price-earnings ratio of 8.3 and I believe the downside is capped at current valuations. On the other hand, the upside potential is significant, considering long-term industry tailwinds.
An important point to note is that AGCO expects softening demand to impact the sale of agriculture equipment this year. However, the company believes it will gain market share, and the pricing impact will likely be positive. Further, if expansionary monetary policies are pursued globally in 2024 and next year, there is a case for accelerating demand for agriculture equipment. I am, therefore, positive about AGCO stock trending higher from oversold levels.
At the same time, AGCO is expanding its addressable market with a focus on machinery, fertilizer and crop protection, among others. On the technology front, the AGCO joint venture with Trimble AG will likely deliver revenue of $2 billion by 2028. Therefore, the growth outlook is positive for the next five years.
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.
