Stocks to buy

The 7 Best Agriculture Stocks to Buy Now

The U.S. Department of Agriculture (USDA) announced on Sept. 14 that it would invest up to $2.8 billion in 70 smart-farming initiatives selected as part of the Partnerships for Climate-Smart Commodities. While these 70 projects won’t give investors an answer regarding The 7 Best Agriculture Stocks to Buy Now, it does reinforce why the agriculture industry is a smart bet for future growth.

The 70 projects in this first funding pool include the following:

  • Climate-Smart Agriculture Innovative Finance Initiative
  • Scaling Methane Emissions Reductions and Soil Carbon Sequestration
  • The Soil Inventory Project Partnership for Impact and Demand
  • The Grass is Greener on the Other Side: Developing Climate-Smart Beef and Bison Commodities, and
  • Traceable Reforestation for America’s Carbon and Timber

All 70 projects aim to help farmers, academics, agriculture-related companies, and government agencies work together to produce a more efficient, innovative, and climate-friendly industry. 

The seven agriculture stocks to buy should all benefit from the investment the Biden Administration and the USDA are making in smart farming. 

While it will take years to assess the success of these projects, you can invest in these seven agriculture stocks today. 

ADM Archer-Daniels-Midland $84.07
CTVA Corteva $58.27
DE Deere & Co. $342.55
TSCO Tractor Supply $192.45
AGM Federal Agricultural Mortgage $102.46
TSN Tyson Foods $68.81
SMG Scotts Miracle-Gro $48.38

Archer Daniels Midland (ADM)

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The Des Moines Register reported in mid-September that Archer-Daniels-Midland (NYSE:ADM) CEO Juan Luciano made $14.8 million by selling 284,531 shares of the world’s leading producer of human and animal nutrition company.

At the time, Luciano exercised options between $33.18 and $40.65 on Sep. 9, netting an extra $2 million on his stock options because the ADM share price had fallen by 12% since. The sale was part of Luciano’s Rule 10b5-1 trading plan. It’s not an indication that he knows something bad about the company. Instead, CEOs, like Luciano have financial obligations requiring them to sell shares for cash. 

As a company, Archer-Daniels-Midland continues to innovate for the future. On Aug. 17, for example, it announced it was collaborating with New Culture, a company that makes animal-free cheese products that look and feel like the real thing. 

The partnership gives New Culture the scale necessary to make an indent in the animal-free dairy products industry. Meanwhile, ADM gains access to one of the industry’s most innovative developers of animal-free dairy products. 

It doesn’t hurt that ADM generates a trailing 12-month operating income of $3.82 billion from $94.36 billion in revenue. ADM is a major player in agriculture.

Corteva (CTVA)

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Agriculture stocks are performing well in 2022. The iShares Global Agriculture Index ETF — listed on the Toronto Stock Exchange as COW– is up nearly 2% year-to-date, almost 26% better than the S&P 500. Not surprisingly, Corteva (NYSE:CTVA) is up more than 22% YTD

In March 2021, I suggested Corteva was one of seven safe stocks that wouldn’t bleed your portfolio. I liked the stock because I believed Corteva would do well in 2021 and beyond. After all, agriculture is wise place to put your money. 

This was despite the threat from activist investor Starboard Value to shake things up. Starboard advocated for the dismissal of CEO Jim Collins in early 2021. While they didn’t get their wish, they did get three of their proposed independent board members added to Corteva’s board in March 2021 as part of the activist investor’s agreement with the company. All three are still on the board. 

Starboard continues to own more than one million shares of CTVA stock. Of the 25 analysts covering its stock, 17 rate it Buy or Overweight, with a median target price of $70, 22% higher than its current share price. 

Deere & Co. (DE)

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In August 2019, I identified 10 companies using artificial intelligence (AI) to grow their businesses. Deere & Co. (NYSE:DE) was one of the names on my list. 

“However, starting in 2013, Deere began to plot a vision of the future farm where all the machinery would be autonomously operated with the farmer monitoring everything from his home” I wrote. “Since then, it has evolved to include AI, computer vision, and machine learning. Agriculture is surprisingly well-suited to technology despite its low-tech reputation.”

Using AI to save its customers money, Deere was betting farmers would buy newer equipment. Deere stock is up more than 128% since then.

Many have a problem with John Deere’s dominance of the farm equipment market and how it got that way, but that’s a story for another day. 

There’s no denying the company’s size and scale. It is the largest farm equipment company in the world after all. In addition, it also sells more equipment globally than the next two largest competitors combined. It controls 53% of the U.S. market for large tractors and 60% of the U.S. combine market.

Its TTM revenue through Q3 2023 is $47.93 billion, with an operating profit of $7.75 billion. That’s an operating margin of 16.2%. CNH Industrial’s (NYSE:CNHI) is 11.4%, 480 basis points lower.

Tractor Supply (TSCO)

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I mentioned the iShares Global Agriculture Index ETF in the Corteva section. One of its top 10 holdings is Tennessee-based specialty retailer Tractor Supply (NASDAQ:TSCO), the largest retail farm and ranch store operator in the U.S. However, it targets recreational farmers, not the kind John Deere supplies.

I first recommended TSCO for InvestorPlace in September 2014. It was one of 3 Great Stocks to Buy With No Debt and Great Prospects. It’s up 209% in the eight years since 2.5x the S&P 500. Charlie Bilello recently pointed out that TSCO was the third best-performing S&P 500 stock over the past 20 years, up 35,087%.

While I don’t know if it can keep up such a blistering pace, it continues to deliver beneficial results. That is, even though, over those 20 years, there’s been at least four different CEOs and two recessions.

The current CEO, Hal Lawton was hired away from Macy’s (NYSE:M) in December 2019. Since then, its shares have nearly doubled. 

In July, Tractor Supply reported Q2 2022 results that included a 5.5% increase in same-store sales and a 10.7% increase in earnings per share. In addition, it raised its 2022 outlook. On the top line, it now expects at least $13.95 billion in revenue, up from its previous guidance of $13.6 billion. On the bottom line, it now expects EPS of at least $9.48, 28 cents higher than its previous guidance.

Down 20% YTD, it currently trades at 1.6x sales, right at its five-year average, so it’s not overpriced.

Federal Agricultural Mortgage (AGM)

Source: wutzkohphoto / Shutterstock

Affectionately known as Farmer Mac, the Federal Agricultural Mortgage Corp. (NYSE:AGM) provides low-cost financing to agricultural lenders and those participating in agribusiness. 

A few highlights from its Q2 2022 presentation suggest it’s an excellent stock to own for the long haul. 

For example, more than 90% of its revenue is recurring, a figure tech companies would die for. On a cumulative basis, just 0.11% of its Agricultural Finance Mortgage Loans have soured. Lastly, its business continues to grow. Between 2000 and 2021, its outstanding business volume achieved a compound annual growth rate of 10%.

Recurring revenue multiplied by rock-solid growth is a recipe for success. I guess that’s why AGM stock’s gained 3,200% since the March 2009 lows during the financial crisis.

On page 7 of its presentation, Farmer Mac points out that it has just 6% of the farm sector real estate debt of $302 billion. The mortgage market is a big one, and it intends to keep gobbling up more of it in the years to come. 

In August, it reported its Q2 2022 results that included adding $1.9 billion of gross business volume ($236 million net growth), a 12% sequential increase in net interest income to $69.4 million, and a core EPS of $2.83, 19% higher sequentially and 2% year-over-year.

Yielding 3.71%, get paid to wait for the stock’s next leg up.

Tyson Foods (TSN)

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The processor of chicken, beef and pork has not done well by shareholders over the past five years. Tyson Foods (NYSE:TSN) stock is down nearly 3%, more than 47 percentage points worse than the S&P 500.

So, why am I including TSN on my list? If nothing else, reversion to the mean suggests Tyson is due for a relief rally. 

Tyson recently made some organizational changes that will help the company grow. Included in the moves was the announcement that fourth-generation Tyson family member John R. Tyson is the company’s new Chief Financial Officer. Current CFO Stewart Glendinning moves over to Group President, Prepared Foods. 

The company hopes Glendinning’s financial and operational background will help its Prepared Foods business come into its own — they currently account for 18.1% of revenue and 17.4% of operating income — while John Tyson appears to be in the running to become CEO in the future.

Analysts are lukewarm about its stock. Of the 15 covering it, 10 rate it a Hold. However, the average target price is $92.72, 35% higher than where it’s currently trading.

Tyson expects 2022 revenues of $53 billion at the midpoint of its guidance. At an operating margin of 9%, it should generate $4.8 billion in operating income for the year.

If you’re an income investor, it has an above-average yield of 2.7%, has grown the annual dividend for 10 consecutive years, and averaged a 17.2% compound annual growth rate over the past five years. 

It’s an excellent stock to own in turbulent times.

Scotts Miracle-Gro (SMG)

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If you bought Scotts Miracle-Gro (NYSE:SMG) stock at the beginning of 2022, I feel your pain. It’s down more than 70% YTD, and there are still three months left of the year.

I would put SMG on your watchlist if you’re an aggressive investor. It hasn’t traded this low since June 2013. If you bought back then and didn’t sell at its all-time high of $180.43 in April 2021, I feel your pain times two.

The company’s shares lost 25% in August alone as margins crumbled as retailers reduced inventory levels.

However, weighing more heavily on the share price could be the implosion of its Hawthorne Gardening business. Sales fell 63% in Q3 2022 to $154.5 million from $421.9 million a year earlier. Through the third quarter, Hawthorne’s sales were down 50% due to oversupply issues. As a result, it took a $632.4 million impairment charge on its goodwill and intangible assets.

To counter the slide, the company announced Project Springboard when it released its third-quarter results in early August. It is intended to return Scotts Miracle-Gro to the level of profitability that shareholders have become accustomed to. Over the past five years, the company’s average gross margin was 32.1%. In Q3 2022, it was 19.9% and 27.5% YTD. 

It trades at o.67x sales, one-third of its five-year average. SMG is the value play of these seven agricultural stocks. 

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.