Why These 3 Farming Stocks Keep Plowing Ahead
Surging demand and waning supply are pushing agricultural commodity prices higher with no clear end in sight. This has these three farming stocks on the move—and among the S&P 500's...
When we think of farming, the word "grains' often comes to mind. Lately, "gains' seems more appropriate—as in the gains that farming-related stocks are cultivating.
Over the past 12 months, the S&P GSCI Agriculture Index is up more than 26%. The benchmark represents a broad basket of agricultural commodities from wheat and corn to live cattle and lean hogs.
The steady climb in a sector that suffered a decade performance drought beginning in 2011 is rooted in the immutable laws of supply and demand.
Global demand for farm commodities is on the rise during the economic recovery. Farmers need more feedstock to fatten their flocks. Reopened restaurants need more meat to feed returning customers.
Meanwhile, adverse weather conditions and supply chain disruptions are limiting global commodity supplies. The Russia-Ukraine war has only complicated supply shortages with the region responsible for much of the world's wheat, sunflower seed oil, and fertilizer exports.
Surging demand and waning supply are pushing agricultural commodity prices higher with no clear end in sight. This has these three farming stocks on the move—and among the S&P 500's biggest gainers.
Is The Mosaic Company Stock Oversold?
After surging over 70% last year, The Mosaic Company (NYSE: MOS) is up 36% year-to-date. That makes it the best-performing S&P 500 stock that isn't in the energy sector. Shares of the phosphate and potash producer have come down from their April 2022 peak, however, largely due to renewed Covid lockdowns in China.
Despite the near-term headwind, Mosaic remains a beneficiary of increasing global demand for fertilizers. Crop prices are up significantly since the start of the pandemic which means farmers are scrambling to capitalize on the favorable environment. And since Mosaic fertilizers help grow approximately three-fourths of North American phosphate crops and one-third of potash crops, it is a major industry player.
Aside from higher selling prices, Mosaic's profits are booming due to some astute cost management. Automation, mine centralization, and process streamlining are helping to offset increased raw materials costs and drive higher margins. This has the Street projecting 176% EPS growth this year—and the oversold stock likely to sprout higher in the months ahead.
Will Corteva Stock Keep Trending Higher?
Corteva, Inc. (NYSE: CTVA) is up nearly 20% year-to-date and an intriguing buy-the-dip opportunity. The former DowDuPont agriculture division has joined the farming frenzy because it offers two vital products—seeds and crop protection. Its seeds help optimize farm yields while its herbicides protect crops from damaging insects and weeds.
Last quarter, Corteva's sales jumped 32% sequentially on broad-based strength in both segments. As the world's demand for corn, soybeans, and other commodities rose, so too did demand for Corteva's expanded offerings. New products like Arylex, Enlist, and Rinskor were quickly snatched up by a global customer base that has grown increasingly concerned about ill-timed herbicide shortages.
The strong start to the year inspired management to raise its full-year EPS guidance to $2.45 at the midpoint. The projection for 2023 earnings was also revised higher in anticipation of ongoing strength in agricultural commodities, moderating input costs, and benefits from cost-reduction initiatives.
Aside from the 19x P/E ratio based on the FY23 earnings outlook, Corteva likely trends higher from here for two reasons. One, the dynamics driving long-term growth in the farm economy are strong. Two, the board authorized an $800 million buyback program that should help limit further downside.
Why is Archer-Daniels-Midland Stock Up?
Archer-Daniels-Midland Company (NYSE: ADM) is riding the agriculture wave from a bit of a different angle. As one of the top producers of food and beverage ingredients, the company is experiencing steady demand from human and animal nutrition customers. And since it can charge more for the commodities and services it sells, profits have been surprisingly consistent and solid. Archer Daniels has topped consensus earnings estimates for 11 consecutive quarters.
This has the stock up 22% in 2022 and on pace to finish higher for the fifth straight year. After coming within a buck of hitting $100 in April, the share price has been dragged back into the low-$80's on general market weakness and concerns about the impact of a potential recession on food ingredient demand.
While a recession would hurt even defensive businesses like Archer Daniels, the long-term fundamentals would be little impacted. Countries will continue to need corn, soybean meal, and proteins to fuel their people and livestock, especially as standards of living rise in developing markets. The company's playbook of selling underperforming units, acquiring complementary businesses, and entering fruitful joint ventures should concurrently drive steady growth.
Archer Daniels' steady growth profile and 49-year dividend hike streak will continue to make it a valuable name to own for years to come. At 14x trailing earnings, it's a great time to plant some seeds.
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