Company / Analytics

Analytics, 22 September 2022

Agricultural stocks to consider for your portfolio

Over the last few years, analysts have been giving warnings about an impending food crisis. The 2020 pandemic brought about reduced incomes and disrupted supply chains which added to chronic and acute hunger on the rise due to factors including conflict and climate change.

The war in Ukraine went on to add misery to the already difficult situation as both countries are both major grain exporters, with Russia also a major fertilizer exporter.

The food crisis has subsequently benefited shares in the agricultural sector, with analysts consistently raising price targets for companies in the sector. Companies in agriculture have garnered impressive gains this year with fertilizer companies such as Mosaic, CF Industries, and Nutrien doing particularly well.

As the global groceries and staples market continues to grow, currently recording a Compound Annual Growth Rate (CAGR) of 4.1%, it is predicted by investors and analysts that the agricultural sector will outperform most other sectors.

In this article, we analyze three agricultural stocks worth considering for your portfolio.

Deere & Company

Deere & Company (DE) is a manufacturing company based in America that is involved in the manufacture of agricultural, construction, and forestry equipment. It is recognized as the largest manufacturer of agricultural equipment.

Deere is among the few equities that have managed to garner gains this year, with the company up 2% year-to-date. This is attributed to consistently good earnings throughout the year. Currently, the company offers its shareholders an annual dividend yield of 1.23%. This was reported in the company’s third-quarter 2022 financial results released in August.

From the report, the company also reported Q3 2022 earnings per share of $6.16, with revenue of $14.1 billion. For context, Wall Street’s consensus estimates for the quarter were earnings of $6.64 per share, along with revenue of $12.9 billion. In addition, the company was able to grow revenue by 22.3% during the same period, in 2021. The company contributed this increase to higher rates of production. What’s more, DE revised its full-year earnings outlook to a range of $7.0 to $7.2 billion.

The company continues to benefit from its focus on launching products with advanced technologies and features that provide it with a competitive edge. Deere’s continued efforts to expand in precision agriculture will be a significant growth driver. The steady rise in agricultural commodities prices is also expected to trickle down to the growth of the company, Deere: The company will continue to benefit from Efforts to Deere, the world’s largest producer

The only concern for the company remains the higher material and labor costs that might dent margins while uncertainty related to the war in Ukraine remains a concern.

The Mosaic Company

Based in Tampa, Florida in the USA, The Mosaic Company (MOS) is one of the world’s leading producers of phosphate and potash, two nutrients that are necessary for plant growth. The company’s products are used in agriculture, industry, and consumer goods.

The company has consistently been viewed as a good investment with its shares up about 160% in the last five years. Shares have also grown 34% year-to-date, outdoing the general stock market that has performed dismally this year. Currently, the company has an annual dividend yield of 1.11%.

MOS reported its second quarter 2022 financial results in August, indicating earnings per share of $3.64 with revenue of $5.4 billion.Over the last five years, MOS managed to grow its earnings per share at 86% a year. For context, analysts’ consensus estimates for Q2 2022 were earnings of $3.93 per share and revenue of $5.7 billion. . Additionally, Mosaic Company posted a 91.8% jump in revenue during the same period, a year prior. What’s more, the company announced that its year-to-date capital return amounted to $1.1 billion, of which $1.0 billion of that was share repurchases.

The stock’s performance has gradually increased over the years and this is evident when comparing the Total Shareholder Return (TSR) over the last year versus over the last five years. The TSR is an important analysis tool as it incorporates the dividend earned per share and the gains from rising in the stock’s shares. The one-year TSR for the stock stands at 65%, while the five-year TSR is recorded at 21% per year. This indicated the stock has gradually performed better year-on-year over the last five years, hinting toward a good business momentum.

Investors’ Note

While the aforementioned stocks offer a good investment opportunity, it is important to note that all stock investments bear a risk of losses. Investors should therefore be cautious of the risks involved in trading when engaging in the stock markets.

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