The Biden-Harris Administration achieved record agricultural exports and net farm income in 2022, demonstrating their success in creating new markets for US agricultural producers and businesses.
Moreover, the adoption of technology in agriculture should boost growth and efficiency in the sector. Therefore, quality agriculture stock Archer-Daniels-Midland Company (ADM) could be an ideal investment this month.
On the other hand, the US agriculture industry is also struggling with several challenges. So, I think fundamentally weak Village Farms International, Inc. (VFF) is best avoided.
As per the US Secretary of Agriculture, Tom Vilsack, the American agricultural sector posted its best export year ever in 2022, with international sales of U.S. farm and food products reaching $196 billion. Moreover, U.S. agricultural exports increased 11%, or $19.50 billion, from the previous record set in 2021.
Secretary Vilsack attributes this success to strengthening relationships with trading partners, investing in infrastructure, removing trade barriers, and supporting export market development programs.
Moreover, the use of technology like sensors, drones, and satellites to monitor crops is also expected to grow, leading to increased efficiency, reduced waste, and improved yields. Also, the global autonomous farm equipment market is anticipated to grow at a significant CAGR of around 10.2% from 2023 to 2029.
However, the industry is facing challenges, including climate change, aging farmers, labor shortages, market volatility, land use, environmental issues, and access to capital. Rising fertilizer prices are also expected to impact the agriculture industry.
Stock to Buy:
Archer-Daniels-Midland Company (ADM)
ADM procures, transports, stores, processes, and merchandises agricultural commodities, products, and ingredients in the United States, Switzerland, the Cayman Islands, Brazil, Mexico, Canada, the United Kingdom, and internationally. The company operates in three segments: Ag Services and Oilseeds; Carbohydrate Solutions; and Nutrition.
On February 6, ADM announced that it had opened a new production facility in Valencia, Spain, to help meet the rising global demand for probiotics, postbiotics, and other products that support health and well-being. The facility will allow ADM to supply growing markets for probiotics and postbiotics in the U.S., Asia-Pacific, and Europe.
ADM anticipates that its number of customers will increase by more than three times in the next five years as an increasing number of individuals acknowledge the connections between the gut microbiome and various health aspects and seek out customized products to meet their specific requirements.
ADM’s forward EV/Sales of 0.51x is 69.4% lower than the industry average of 1.66x. Its forward non-GAAP P/E multiple of 11.06 is 39% lower than the industry average of 18.12. Its forward EV/EBITDA multiple of 8.62 is 23.4% lower than the industry average of 11.26.
ADM’s 4-year average dividend yield is 2.69%, and it pays $1.80 annually as dividends which translates to a yield of 2.35% at the current price. Its dividend payouts have grown at 5.4% CAGR over the past three years. Moreover, the company has raised dividends for 50 years.
ADM’s revenues increased 13.6% year-over-year to $26.23 billion during the fourth quarter that ended December 31, 2022. Its gross profit grew 6.8% from the year-ago value to $1.76 billion. Also, the company’s EBIT rose 20% from the prior year’s quarter to $1.21 billion.
Adjusted net earnings increased 25.8% year-over-year to $1.07 billion, while its adjusted EPS rose 28.7% year-over-year to $1.93.
Analysts expect ADM’s revenue for the current fiscal quarter ending March 2023 to come in at $24.20 million, indicating a 2.3% year-over-year growth. The company’s EPS is expected to be $1.76. Also, it has surpassed EPS estimates in each of the trailing four quarters, which is impressive.
The stock gained marginally intraday to close the last trading session at $77.22.
ADM’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
ADM also has a B grade in Growth and Sentiment. It is ranked #5 out of 26 stocks in the Agriculture industry.
For additional ratings for ADM’s Value, Stability, Quality, and Momentum, click here.
Stock to Sell:
Village Farms International, Inc. (VFF)
VFF produces, markets, and sells greenhouse-grown tomatoes, bell peppers, and cucumbers in North America. It operates through four segments: Produce; Cannabis-Canada; Cannabis-U.S.; and Energy.
VFF’s forward EV/EBITDA of 192x is significantly higher than the industry average of 11.26x.
VFF’s sales declined 4% year-over-year to $69.46 million during the fourth quarter that ended December 31, 2022. Adjusted EBITDA came in at negative $758 thousand, compared to $4.83 million in the previous-year quarter.
Net loss attributable to VFF came in at $49.33 million, compared to a net income of $2.08 million in the previous-year quarter. Its loss per share came in at $0.54, compared to an income per share of $0.03 in the previous-year quarter.
Street expects VFF’s EPS to come in at negative $0.05 for the current quarter ending March 2023. Its revenue is expected to be $70.01 million for the same quarter. The stock has failed to surpass the EPS estimates in each of the trailing four quarters, which is disappointing.
The stock has declined 80.2% over the past year to close its last trading session at $0.90.
VFF’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system.
VFF has a D grade in Momentum, Stability, Sentiment, and Quality. It is ranked #24 in the same industry.
Beyond the POWR Rating grades we’ve stated above, VFF’s rating for Growth and Value can be seen here.
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ADM shares were unchanged in premarket trading Tuesday. Year-to-date, ADM has declined -16.38%, versus a 0.77% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
1 Agriculture Stock to Buy This Month and 1 to Sell StockNews.com
