Although the increasing global population places significant pressure on the agriculture industry, the sector is thriving with robust demand and innovation. Hence, while robust agriculture stocks Dole plc (DOLE) and Adecoagro S.A. (AGRO) could have the potential to bloom this year, I think it could be best to wait for an entry point in AGCO Corporation (AGCO) and Archer-Daniels-Midland Company (ADM).
The agriculture industry, vital to the global economy, supplies food and raw materials for diverse industries. With global demand for organic and sustainable agriculture products rising, innovative practices such as vertical farming and hydroponics are gaining traction.
The agriculture market is projected to reach a gross production value of $3.90 trillion this year. The sector is expected to expand at a CAGR of 5.7%, reaching $4.86 trillion in 2028.
Besides, the U.S. Department of Agriculture, under President Biden's Investing in America agenda, concluded the last year by spotlighting successful on-the-ground projects and partnerships that enhanced economic prosperity for farmers and rural communities nationwide. The agency supported thousands of farmers, improved rural internet access, tackled climate change, boosted small businesses, and reduced energy costs.
Moreover, the USDA, under Section 22006 of the Inflation Reduction Act, has assisted over 30,000 financially distressed farmers and ranchers, allocating $3.10 billion for relief last year. Moreover, the USDA also enhanced its loan application processes, showering relief to farmers.
Furthermore, the extensive integration of technology has fortified the agricultural sector, enhancing both efficiency and productivity. Notably, technologies such as the Internet of Things (IoT), Artificial Intelligence (AI), blockchain, and Machine Learning (ML) are presenting promising prospects for the expansion and progress of the global smart agriculture market.
The global smart agriculture market is anticipated to grow at a 13.4% CAGR from 2023 to 2030.
With these favorable trends in mind, let's delve into the fundamentals of the four Agriculture stock picks.
Stocks to Buy:
Dole plc (DOLE)
Headquartered in Dublin, Ireland, DOLE engages in sourcing, processing, marketing, and distribution of fresh fruit and vegetables worldwide. The company operates through four segments: Fresh Fruit; Diversified Fresh Produce – EMEA; Diversified Fresh Produce – Americas and ROW; and Fresh Vegetables.
DOLE’s trailing-12-month asset turnover ratio of 2.08x is 148.8% higher than the 0.84x industry average. The stock’s trailing-12-month cash per share of $2.29 is 34.4% higher than the $1.70 industry average.
On January 4, DOLE paid its shareholders a quarterly dividend of $0.08 per share. The company pays an annual dividend of $0.32, which translates to a yield of 2.55% on the current market price, higher than its four-year average dividend yield of 2.03%.
On October 2, 2023, DOLE launched Dole Organics, a specialist division, and the consumer brand 'GO Organic!' to revitalize the organic fresh produce sector. Dole Organics focuses on collaboration, supply chain consolidation, product consistency, and effective category management.
Meanwhile, 'GO Organic!' expands DOLE's successful presence in Europe with a diverse range of organic fresh produce, complementing offerings like DOLE® Organic bananas and pineapples.
In the fiscal third quarter, which ended on September 30, 2023, DOLE’s revenue increased 4.2% year-over-year to $2.04 billion. Its operating income rose 166.9% from the year-ago value to $77.10 million.
The company’s attributable net income amounted to $45.29 million and $0.48 per share, up 13.7% and 14.3% from the prior-year quarter, respectively. In addition, DOLE’s adjusted EBITDA improved 7.6% year-over-year to $85.20 million.
For fiscal year 2023, the company expects to report strong performance with $365 million.
Street expects DOLE’s EPS and revenue to rise 13% and 6.9% year-over-year to $0.38 and $2.11 billion in the fiscal first quarter ending March 2024. Additionally, the company topped its EPS estimates in each of the trailing four quarters, which is promising.
DOLE’s shares have surged 23% over the past year and 6.5% over the past three months to close the last trading session at $12.20.
DOLE’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted optimally.
It has an A grade for Value and a B for Growth and Sentiment. In the 23-stock Agriculture industry, it is ranked first.
In addition to the POWR Ratings stated above, one can access DOLE’s Stability and Quality ratings here.
Adecoagro S.A. (AGRO)
Luxembourg-based agro-industrial company AGRO engages in farming crops, rice and other agricultural products, dairy operations, and land transformation activities. It operates mainly through three segments: Farming; Sugar; Ethanol and Energy; and Land Transformation.
AGRO’s trailing-12-month levered FCF margin of 12.64% is 155.9% higher than the 4.94% industry average. Its trailing-12-month EBITDA margin of 30.85% is 91.5% higher than the industry average of 11.26%.
The company’s annual dividend of $0.33 translates to a 3.05% yield on the prevailing prices, while its four-year average dividend yield is 1.24%.
During the fiscal third quarter, which ended on September 30, 2023, AGRO’s gross sales increased 1.6% year-over-year to $387.95 million. The company’s adjusted net income came in at $88.56 million and $0.83 per share, representing increases of 87.6% and 93% from the prior-year quarter, respectively. Its total adjusted EBITDA rose 27% from the year-ago value to $155.29 million.
AGRO’s EPS and revenue are expected to rise 30.1% and 2.1% year-over-year to $1.47 and $1.38 billion in the fiscal year 2023, respectively. Additionally, the company has an excellent surprise history, surpassing the revenue estimates in each of the trailing four quarters.
AGRO’s shares have soared 36.2% over the past year to close the last trading session at $10.80. It has returned 12.5% over the past six months.
It’s no surprise that AGRO has an overall rating of B, which equates to a Buy in our proprietary rating system.
It has a B grade for Value. In the same industry, it is ranked #5.
Beyond the POWR Ratings we’ve stated above, we also have AGRO’s ratings for Growth, Momentum, Stability, Sentiment, and Quality. Get all AGRO ratings here.
Stocks to Hold:
AGCO Corporation (AGCO)
AGCO manufactures agricultural equipment and related replacement parts worldwide. The company offers tractors, drying and handling equipment systems, seed-processing systems, harvesting grain crops and application equipment.
AGCO’s trailing-12-month gross profit margin of 25.74% is 15% lower than the industry average of 30.28%. But its trailing-12-month net income margin of 7.96% is 30.1% higher than the industry average of 6.12%.
The company pays an annual dividend of $1.16, that yields 0.96% on the current market price. Its four-year average dividend yield is 3.32%. The company has raised its dividend at a CAGR of 20.2% over the past three years. The company has consistently raised its dividend payouts for the past ten years.
In the fiscal third quarter that ended on September 30, 2023, AGCO’s net sales increased 10.7% year-over-year to $3.46 billion. Its gross profit rose 26.4% from the year-ago value to $934 million. The company’s adjusted net income amounted to $297.90 million and $3.97 per share, up 24.9% and 24.8% from the prior-year quarter, respectively.
However, its selling, general and administrative expenses rose 23% from the prior-year-quarter to $353.60 million.
While AGCO’s EPS is estimated to decline 9.6% year-over-year to $4.04 in the fiscal fourth quarter ended December 2023, its revenue is likely to rise 3.5% from the prior-year quarter to $4.04 billion.
The stock has gained 4.4% over the past month to close the last trading session at $121.13. However, it has declined 7.4% over the past six months.
AGCO’s POWR Ratings reflect this mixed outlook. The stock has an overall C rating, translating to Neutral in our proprietary rating system.
It has a C grade for Growth, Momentum, Stability, and Quality. In the same industry, it is ranked #6.
Click here to see AGCO’s ratings for Value and Sentiment.
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.
Although ADM’s trailing-12-month asset turnover ratio of 1.71x is 104.6% higher than the industry average of 0.84x, its trailing-12-month gross profit margin of 4.25% is 49.5%lower than the industry average of 8.43%.
ADM pays $1.80 annually as dividends, which translates to a yield of 2.55% on the prevailing price level. The company has raised its dividend payouts consistently for the past 30 years.
ADM’s revenues for the fiscal third quarter ended September 30, 2023, came in at $21.70 billion, down 12.1% year-over-year. The company’s gross profit declined marginally year-over-year to $1.81 billion.
However, its selling, general, and administrative expenses declined marginally year-over-year to $815 million.
Analysts expect ADM’s revenue and EPS to come in at $24.67 billion and $1.67 for the fiscal fourth quarter (ending December 2023), down 6% and 13.7% year-over-year. While the company has exceeded the consensus EPS estimates in each of the trailing four quarters, it has failed to exceed its consensus revenue estimates in three of the trailing four quarters.
Over the past year, the stock has declined 17.2% to close the last trading session at $70.67.
ADM’s POWR Ratings reflect this neutral outlook. The stock has an overall rating of C, translating to Neutral in our proprietary rating system.
It has a C grade for Growth, Value, Stability, and Quality. It is ranked #7 in the same industry.
To access ADM’s Momentum and Sentiment ratings, click here.
What To Do Next?
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ADM shares were trading at $69.68 per share on Wednesday morning, down $0.99 (-1.40%). Year-to-date, ADM has declined -3.52%, versus a -0.08% 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.
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