Choosing agriculture stocks to buy will be challenging in the coming decades. The global population is expected to increase to 10 billion by 2050. To feed the swelling population, bigger investments are needed in the agricultural sector. However, growth is impacted by factors like water shortage and uncertain weather conditions. Notably, 258 million people faced acute food insecurity in 2022.
Amid challenges, there are wealth creation opportunities. In my view, Agricultural stocks can create massive value in the coming years. Given the challenges related to food insecurity, it’s likely that investments in the agriculture sector will swell in the coming years. Favorable government policies will support this.
This column focuses on three well-positioned agricultural companies benefiting from positive industry tailwinds. Backed by strong fundamentals, the growth story for these companies is likely to be sustained through 2030. Let’s discuss the reasons for being bullish on these agricultural stocks.
AGCO (AGCO)
AGCO NYSE:AGCO) stock has remained sideways amidst volatility in the last three years. Considering business metrics and valuation, a strong breakout on the upside is impending. AGCO stock trades at an attractive forward price-earnings ratio of 9.4.
As an overview, AGCO manufactures agricultural equipment and replacement parts. For 2023, AGCO reported revenue growth of 13.9% yearly to $14.4 billion. Further, operating income increased by 34.4% to $1.7 billion with a 180-basis points expansion in operating margin.
It’s worth noting that the company has guided for improvement in operating margin to 12% by 2026. At the same time, AGCO targets growth of 4% to 5% higher than the industry average. Business metrics will likely remain positive and cash flows will continue to swell. For 2023, AGCO reported free cash flow of $585 million.
Adecoagro (AGRO)
Adecoagro (NYSE:AGRO) is among the most undervalued agriculture stocks to buy. AGRO stock has trended higher by 40% in the last 12 months. However, valuations remain attractive, considering a forward price-earnings ratio of 8.3. Further, AGRO stock offers a dividend yield of 2.97%.
As an overview, Adecoagro is involved in farming crops, rice and other agricultural products. Further, the company pursues land transformation activities coupled with sugar and ethanol production.
It’s also worth mentioning that the company’s farm assets have a valuation of $745 million. In comparison, Adecoagro trades at a market valuation of $1.1 billion. With assets generating healthy cash flows, the extent of undervaluation is clear.
For 2023, Adecoagro reported an adjusted EBITDA of $476 million and a margin of 33.6%. For the same period, free cash flows were $108 million. With robust average selling prices for agricultural commodities, I expect healthy EBITDA and cash flows to sustain. This will also ensure steady dividend growth.
Corteva (CTVA)
Corteva (NYSE:CTVA) is another interesting pick among agricultural stocks to buy. CTVA stock has been sideways in the last 12 months and looks attractive at a forward price-earnings ratio of 20.
As an overview, Corteva is involved in the seed and crop protection business. The company has a presence in 125 countries and reported revenue and EBITDA of $17.23 billion and $3.38 billion, respectively, for 2023. As a pure-play in agriculture, Corteva seems well positioned to benefit.
Returning to the financials, Corteva reported free cash flow of $1.2 billion last year. With healthy growth in the seed segment, Corteva expects sustained upside in operating EBITDA.
Corteva reported operating EBITDA margin of 19.6% last year. Margin is expected at 20.5% for the year and 22% for 2025. Therefore, the business growth metrics are positive and as cash flows swell, investing in innovation and technology will be more flexible.
On the date of publication, Faisal Humayun did not hold (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 InvestorPlace.com Publishing Guidelines.
