Today I’ll look at the best agriculture stocks to buy now. Each of these picks are cheap both on an earnings multiple basis and using other value metrics. The metrics I’m looking at today include free cash flow and dividend yield, as well as buyback yield.
In fact, these are all farming machinery and construction companies that are profitable.
In terms of agriculture, sometimes it’s better to own the stocks of the companies that help farmers, rather than directly owning the crops or other output.
These machinery companies are all very inexpensive now. The chart at right shows that the average price-to-earnings (P/E) multiple for the group of these agriculture stocks is 12.3 times
Moreover, the average earnings growth rate is 9.7% for earnings forecasts to 2023. That lowers the average multiple to just 11.1x for 2023x.
The average dividend yield of the group is also now 1.81%.
That makes these the best agriculture stocks to buy now.
Let’s dive in and look at these stocks.
|DE||Deere & Co.||$294.33|
|TORO||The Toro Company||$79.51|
Deere & Co. (DE)
Market Capitalization: $90.5 billion
Deere & Co. (NYSE:DE) is the well-known John Deere brand of agriculture machines and tools. It along with Case and and a few other companies dominates the farm machinery market.
Things are looking good for Deere & Co., as analysts project earnings to grow by 12% from $23.17 to $25.95 in 2023. This is based on 15 analysts’ estimates from a survey by Seeking Alpha. This puts it on a cheap 2022 multiple of just 12.7x, falling to 11.3x next year.
Moreover, this allows the company to pay a dividend of $4.52, which it recently raised in Q1 by 7.6%. In fact, Deere has raised its dividend in each of the past five years, and it has consistently paid an annual dividend for every year of the past 32 years. That gives investors a lot of comfort that it can survive the present recession.
That gives the DE stock a 1.5% dividend yield at Thursday’s closing price of $294.33.
In addition, Deere & Co has been buying back a large number of its common stock shares. Last quarter it spent $603 million, which put it on an annual run rate of $2.412 billion. That represents 2.67% of its market cap. The stock is down over 12.8% YTD.
All this makes it one of the best agriculture stocks to buy now. In fact, TipRanks reports that 17 analysts have an average price target of $403.50, which is 37% over today’s price.
The Toro Company (TTC)
Market Cap: $8.1 billion
The Toro Company (NYSE:TTC) is a turf and landscape equipment products manufacturer. Earnings are forecast to rise 18% next year to $4.85 from $4.11 this year.
That puts TTC stock on a forward P/E multiple of 19.3x for this year and 16.4x for next year. Moreover, its earnings more than cover the $1.20 dividend payment. This gives the stock a dividend yield of 1.5%.
Moreover, in the last 12 months ending March 31, The Toro Company has bought back $272 million of its shares. That represents 3.35% of its shares outstanding.
This gives the stock a total yield of 4.85%, including both the dividend and buyback yield. It also makes this one of the best agriculture stocks to buy. In fact, TipRanks report that its analyst price target is 20% higher at $96.00 over its Thursday price of $79.51.
AGCO Corp (AGCO)
Market Cap: $7 billion
AGCO Corporation (NYSE:AGCO), the farm machinery maker, is forecast to grow its earnings over 11% from $11.76 to $13.06 next year. That lowers its forward P/E to just 6.9x in 2023 from 7.7x this year.
Moreover, the stock yields just over 1% at $90.25 at the close July 14, and has consistently raised the dividend every year for the past nine years. The dividend payment of 96 cents is more than covered by the EPS of $11.77, making the payout ratio very low at just around 8%.
This leaves plenty of room for AGCO to raise its dividend and also to buy back large amounts of its shares. For example, in the last 12 months to March 31, it spent $159.4 million on share repurchases. That works out to 2.28% annually of its market value.
This buyback yield of 2.28% plus its 1% dividend yield means it has a 3.28% total shareholder yield. Analysts covered by TipRanks have an average 51% higher price target at $137.71.
CNH Industrial (CNHI)
Market Cap: $14 billion
CNH Industrial (NYSE:CNHI) makes agricultural and construction equipment, trucks, commercial vehicles, buses and specialty vehicles in the U.S and overseas. The company is forecast to show 8.7% earnings growth next year.
At $10.77 per share on July 14, the stock has a forward multiple of 7.9x earnings for 2022. It falls to 7.3x for next year based on analysts’ average forecast of $1.48 per share, up from $1.36 in 2022.
And with its 30-cent dividend per share, well-covered by earnings, the stock has a dividend yield of 2.8%. And it has consistently paid dividends in the past 13 years.
In addition, six analysts surveyed by TipRanks have an average price target of $16.42. That is over 49% over today’s stock price.
Kubota Corp (KUBTY)
Market Cap: $18.2 billion
Kubota Corporation (OTCMKTS:KUBTY) is a farm and industrial machinery maker based in Japan, but it sells its products throughout the world, including in the U.S.
The company makes good earnings, expected to bring in $6.18 per share this year. However, analysts forecast lower earnings for next year, raising its P/E multiple to 13.2x from 12.2x this year. This is still very cheap for an industrial company.
Moreover, Kubota pays a 1.9% dividend yield, which makes up for the lower earnings forecasts for next year. This makes it one of the best agriculture stocks to buy.
Market Cap: $93.1 billion
Caterpillar (NYSE:CAT) is a brand-name farm and industrial machine manufacturer that is still forecast to show 16%-plus earnings growth next year, despite fears of a recession.
However, the stock is down about 18% YTD, so this puts it on a cheap forward multiple of just 13.6x for 2022 with earnings forecast at $12.45 per share. In 2023, EPS is likely to hit $14.48, effectively lowering the forward P/E multiple to just 11.7x.
On top of this, Caterpillar pays a generous dividend of $4.80 per share or just 38.6% of its earnings per share. That shows that the dividend is sustainable. In fact, Caterpillar has paid annual dividends every year for the past 32 years. Right now the stock has an attractive dividend yield of 2.8% at Thursdays closing price of $169.94.
In addition, Caterpillar believes very strongly in buybacks. In Q1 it spent $820 million on share repurchases. Annualized that works out to $3.28 billion, or 3.52% of its total market value. In other words, its total shareholder yield, including dividend yield, is over 6.34% on a combined basis.
In fact, 16 analysts surveyed by TipRanks have an average 32% higher price target at $227.13. This makes it one of the best agriculture stocks to buy.
On the date of publication, Mark Hake 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.