In this article, we discuss the 10 best farmland stocks to buy now. If you want to skip our discussion on the latest developments in the farming industry, go directly to the 5 Best Farmland Stocks to Buy Now.
According to a report by the Organization for Economic Co-operation and Development, the demand for agricultural products is expected to increase by 15% globally over the next ten years. With operations spanning the gamut from various subsistence farms to enormous multinational holdings, global agriculture has developed into a highly varied industry. Today’s farmers not only produce food but also play a significant role in protecting the environment.
In nominal terms, farm sector equity in the U.S. is predicted to rise by 1% to $2.85 trillion in 2022, a decrease of 2.5% year-over-year (YoY) after accounting for inflation. Following improvements in the value of farm real estate, it is predicted that farm sector assets will expand 1.3% to $3.31 trillion in 2022.
Like most sectors, farmland stocks also took a beating during the COVID-19 pandemic. The conflict between Russia and Ukraine that began in February 2022 provided negative impetus to commodity prices across the globe. In 2019, Russia and Ukraine exported more than one-quarter of the world’s wheat and are responsible for one-third of global wheat production. Russia is also the biggest exporter of fertilizer globally. However, since the start of the conflict, exports have been disrupted. The shortage in fertilizer supply has caused prices to rise globally, resulting in higher grain prices for consumers and farmers due to increased input costs.
The global developments have impacted the financial strength of the farm sector. In comparison to 2020, net cash farm income is estimated to have climbed by 14.5% or $17 billion in 2021, and is anticipated to rise by $1.9 billion to $136 billion in 2022. Cash receipts from farming and farm-related income are included in net cash farm income. Furthermore, following higher payments for soybeans, corn, and wheat, total crop receipts are anticipated to rise by $12 billion in 2022 from their value in 2021. As investors turn bullish on the farm and agricultural sector, companies like The Mosaic Company (NYSE:MOS), Nutrien Ltd. (NYSE:NTR), and Deere & Company (NYSE:DE) are gaining attention.
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Our Methodology
We have looked at the various aspects of the farmland sector and the supply chain associated with it to produce our list of the 10 best farmland stocks to buy now. We have shortlisted companies that provide a stable business outlook with healthy cash flows and strong shareholder returns in the form of dividends and share buybacks. The latest analyst ratings have also been taken into account. These stocks have been ranked as per the level of hedge fund ownership as of Q2 2022 among the select group of high performing hedge funds tracked by Insider Monkey’s database.
10 Best Farmland Stocks to Buy Now
10. The Scotts Miracle-Gro Company (NYSE:SMG)
Number of Hedge Fund Holders: 25
The Scotts Miracle-Gro Company (NYSE:SMG) is a Marysville, Ohio-based manufacturer and seller of branded lawn and garden products like fertilizers, grass seeds, insecticides, and rodent and weed control solutions.
The Scotts Miracle-Gro Company (NYSE:SMG) shares offer an annual forward dividend yield of 3.44% as of August 22 based on the stock’s quarterly dividend of $0.66 per share.
Since the start of the year, The Scotts Miracle-Gro Company (NYSE:SMG) stock has lost more than 52% of its value, and this provides an attractive entry point for potential investors, as the company has undertaken restructuring initiatives under the banner of Project Springboard. It is a cross-functional initiative that The Scotts Miracle-Gro Company (NYSE:SMG) has undertaken to expand its margins, improve its cash flow situation, and create value for shareholders.
Additionally, the business has a Hawthorne division that is the top producer, marketer, and supplier of fertilizers and associated gear for hydroponic and indoor horticulture. The U.S. consumer market accounts for 65% of The Scotts Miracle-Gro Company’s (NYSE:SMG) total annual sales, while its Hawthorne segment accounts for 29% of sales.
9. FMC Corporation (NYSE:FMC)
Number of Hedge Fund Holders: 29
FMC Corporation (NYSE:FMC) is a Pennsylvania-based insecticide company. Analysts consider the crop protection company a resilient player in the current recessionary environment. Christopher Parkinson at Mizuho gave FMC Corporation (NYSE:FMC) a ‘Buy’ rating with a target price of $149 in a research note issued on July 29. The target price provides potential upside of 33.7% from the closing stock price as of August 23.
During Q2 2022, FMC Corporation (NYSE:FMC) reported that numerous product categories experienced double-digit gains. The company’s insecticide segment observed the highest YoY growth of more than 20%. In comparison to the same period last year, sales of items introduced in the previous five years increased by over 35%. FMC Corporation (NYSE:FMC) has a strong future outlook. The company has already received 70% of the total orders required in Brazil to achieve its second-half revenue guidance. Due to favorable commodity prices and above-average client demand, there has been an increase in orders.
Glenview Capital, the hedge fund owned by Larry Robbins and Mark Horowitz, increased its stake in FMC Corporation (NYSE:FMC) from 356,521 shares to 758,499 shares, according to a filing made to the U.S. Securities and Exchange Commission (SEC) on August 11. Following the addition to the fund’s portfolio, the value of its holding stands at $81.2 million.
Miller Value Partners shared its outlook on FMC Corporation (NYSE:FMC) in its Q2 2022 investor letter. Here’s what the firm said:
“We also believe that a lot of Energy equities remain mispriced. The sector generated negative returns in four of the last six years (2015, 2017, 2018, and 2020). Even with a strong 2021 and start to 2022, the Energy sector 10-year returns at the end of the 2nd quarter are only 4.3% versus 18.7% for Technology and 13% for the overall S&P 500. Our two energy holdings – Nabors Industries (NYSE:NBR) and TechnipFMC (NYSE:FMC) – are oil service companies that recently experienced multi-year trough conditions. Given the delayed industry Capital Expenditure (“capex”) recovery, both companies have only recently seen higher utilization rates, improved pricing, higher margins, and growing backlogs. It is also important to note that their revenue isn’t directly tied to a commodity price but to industry capital spending trends. Both management teams see a multi-year positive industry capex cycle with oil prices greater than $70/share. Nabors and TechnipFMC share prices are still 75% below their 5-year highs, at low single-digit cash flow multiples, and normalized free cash flow yields in excess of 30%. Both companies have significant price-to-value gaps that offer the potential to generate very positive long-term returns.”
8. Tyson Foods, Inc. (NYSE:TSN)
Number of Hedge Fund Holders: 37
Tyson Foods, Inc. (NYSE:TSN) is a Springdale, Arkansas-based processor and marketer of beef, chicken, and pork through a diverse portfolio of brands.
Last week, Tyson Foods, Inc. (NYSE:TSN) announced additional growth investments in the form of a $200 million expansion project at a beef factory in Texas. The funds will be used to upgrade the company’s Amarillo facility and streamline the production process using advanced technology. The company is aiming to complete the expansion by 2024.
Tyson Foods, Inc. (NYSE:TSN) stock was given a target price of $95 along with an ‘Overweight’ rating by Ben Bienvenu at Stephens on August 9. This rating followed the company’s Q3 FY22 results that saw operating margins contract due to supply chain-related challenges. Experts believe that the 8% decline in stock price following the quarterly results has priced in all the short-term challenges for Tyson Foods, Inc. (NYSE:TSN) and provides an attractive entry point. Bienvenu believes that there is clear momentum in the chicken business.
Out of the 895 hedge funds tracked by Insider Monkey that filed 13Fs for the Q2 reporting period, 37 funds held a stake in Tyson Foods, Inc. (NYSE:TSN) as of June 30.
7. Archer-Daniels-Midland Company (NYSE:ADM)
Number of Hedge Fund Holders: 42
Archer-Daniels-Midland Company (NYSE:ADM) is an Illinois-based food processing and commodities trading organization.
Sam Margolin at Wolfe Research started coverage on Archer-Daniels-Midland Company (NYSE:ADM) stock with an ‘Outperform’ rating and a target price of $117 in a research note issued on August 12. The analyst believes that Archer-Daniels-Midland Company (NYSE:ADM), through its Nutrition division, offers an opportunity for “highly competitive dividend growth.” The analyst has a positive outlook on commodity prices due to the biofuel policies recently introduced by the U.S. government.
The financial strength of Archer-Daniels-Midland Company (NYSE:ADM) can be gauged by the company’s strong Q2 2022 results published on July 26. Revenue increased by 19% YoY to $27.3 billion and surpassed the consensus estimate of $24.9 billion. Meanwhile, the firm’s adjusted EPS of $2.15 easily surpassed analysts’ forecast of $1.72. Archer-Daniels-Midland Company (NYSE:ADM) stock offers a modest forward dividend yield of 1.85% as of August 22. The company’s management has also announced that it will institute a share buyback plan of $1 billion by the end of 2022.
Diamond Hill Capital shared its stance on Archer-Daniels-Midland Company (NYSE:ADM) in its Q1 2022 investor letter. Here’s what the firm said:
“ADM is a leading agricultural processor that also operates a global nutrition business focused on the development of ingredients and flavors for food and beverages, supplements and more. The company’s recent operating results have benefited (unfortunately) from the war in Ukraine as grain prices and agricultural markets globally experienced strong price increases. ADM is positioned well to benefit from the volatility due to its stable North American agricultural base.”
6. Corteva, Inc. (NYSE:CTVA)
Number of Hedge Fund Holders: 42
Corteva, Inc. (NYSE:CTVA) is an Indianapolis, Indiana-based agricultural chemical and seed company. Corteva, Inc. (NYSE:CTVA) has a forward annual dividend yield of 0.98% as of August 22 based on its annual dividend of $0.60 per share.
On August 9, Arun Viswanathan at RBC Capital increased the target price for Corteva, Inc. (NYSE:CTVA) from $67 to $72 and maintained an ‘Outperform’ rating on the stock following the company’s stellar Q2 2022 results. The analyst highlighted that in the volatile market, Corteva, Inc. (NYSE:CTVA) is in a strong position to increase its top line, expand its bottom line margins and use healthy free cash flows to buy back stock. Viswanathan believes that Corteva, Inc. (NYSE:CTVA) should have strong demand for its offerings despite the ongoing inflationary cost pressure.
Of the 895 hedge funds in Insider Monkey’s database that filed 13Fs for the latest quarter, 42 funds held a stake in Corteva, Inc. (NYSE:CTVA) at the end of Q2 2022.
In its Q1 2022 investor letter, Aristotle Capital Management discussed its outlook on Corteva, Inc. (NYSE:CTVA):
“Corteva Agriscience, one of the world’s largest seed and crop protection companies, was a primary contributor for the quarter. Due to its respected brand and the value-added benefits of its patented seeds and crop protection solutions for farmers, Corteva has been able to more than offset input cost inflation with sustainable price increases. In addition, the company’s ongoing mix shift to higher-margin, premium products, a catalyst we previously identified, is aiding both sales and profit growth. Shares were likely also buoyed by the rise in crop prices. Market participants, perhaps eager to chase short-term trends, poured into the sector. At Aristotle Capital, we look past such gyrations and, as long-term investors, do not attempt to predict short-term changes in commodity prices. We remain excited about what we view to be high-quality characteristics and fundamental improvements that permeate Corteva’s business, not the least of which include its pricing power.”
In addition to Corteva, Inc. (NYSE:CTVA), notable companies like The Mosaic Company (NYSE:MOS), Nutrien Ltd. (NYSE:NTR), and Deere & Company (NYSE:DE) have also made it to our list of the 10 best farmland stocks to buy now. Check out where they rank in the second part of this article.
Click to continue reading and see 5 Best Farmland Stocks to Buy Now.
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Disclose. None. 10 Best Farmland Stocks to Buy Now is originally published on Insider Monkey.