The world is grappling with profound challenges, including the Middle East conflict, the protracted war in Ukraine and widespread elections later this year. Consequently, looming food shortages underscore the importance of investing in the best agricultural stocks.
The International Fund for Agricultural Development warns that the elections in 70 countries this year will likely disrupt efforts to ensure stable food supplies. Similarly, the UN World Food Programme reports a critical situation in West and Central Africa, where 55 million people could suffer from food and nutrition insecurity during the lean season from June to August.
Additionally, long-term factors, including population growth and climate change, promise sustained sector growth, making betting on agricultural stocks incredibly lucrative.
AGCO (AGCO)
AGCO (NYSE:AGCO) is a major player in the agricultural industry due for a breakout. It ended last year with healthy improvement across both lines, but its stock did not mirror this progress. Consequently, AGCO stock is trading around 9.31 times forward earnings, 56% behind the sector median.
Nevertheless, AGCO continues to impress with its significant international presence, focus on high-margin precision agriculture, and comprehensive lifecycle approach to its service. Its power-packed business model has helped it grow its free cash flow balance by 167% in the past eight years to $520 million. Also, its stellar financial health is marked by an impressive return on common equity at over 27% and a trailing 12-month (TTM) operational cash balance of $1.1 billion.
As we advance, AGCO has guided a strong improvement in operating margins to 12% by 2026. At the same time, it’s looking to target growth of 4% to 5% higher than the industry average, making it an excellent agriculture stock pick at current prices.
Bunge Global (BG)
Bunge Global (NYSE:BG) operates a global agribusiness that is involved in the sourcing, processing and distributing of oilseeds and grains to produce food, animal feed, and renewable fuels. It has been a remarkably consistent business over the years, but recent results have fallen short of analyst estimates. The volatility in commodity prices, global trade uncertainties, and regulatory changes have weighed down its business in the past few quarters. Nevertheless, its long-term prospects remain robust, with a rock-solid balance sheet that underpins its potential for inorganic expansion through acquisitions.
Last year it merged with Viterra, known for its sustainable agricultural network, and given its free cash flow balance of $1.8 billion, expect more acquisitions ahead. Also, the firm has drawn credit facilities at a whopping $5.7 billion. Additionally, it boasts a remarkable dividend profile, with an excellent 2.55% dividend yield and three consecutive years of payout growth. Hence, at under 0.30 times forward sales estimates, BG stock remains an excellent pick in the agriculture space.
CF Industries (CF)
CF Industries (NYSE:CF) is a giant in the industrial fertilizer space, serving wholesalers, traders and multiple distributors. The ag stock has been an excellent wealth compounder in the past few years, with a 3-year return exceeding 72%. A lot of those gains are linked to its robust performance in 2022, where it delivered a 71% jump in revenues to $11.19 billion. The record results were due to a combination of factors, including high fertilizer demand, energy cost advantages and the volatile geopolitical situation, which played right into the CF Industry’s proverbial hands.
Over the long term, CF remains a highly attractive investment option due to beneficial energy differentials and secular tailwinds pushing the fertilizer industry. 2023 was a relatively solid year for its business, producing significant cash flows while maintaining operational profitability despite tough price conditions. Looking ahead, the company anticipates a positive long-term outlook for its business, driven by tight supply-demand conditions and a growing demand for low-carbon ammonia.
On the date of publication, Muslim Farooque 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 InvestorPlace.com Publishing Guidelines