3 Key Stocks Fueling US Agriculture’s Recovery

Each economic cycle offers a different set of opportunities for investors. These are weighted as a balance between risk and potential reward. Depending on market conditions, the balance could tip one way or the other. Today’s environment may represent more risk than desired for most investors, so boring names may be your best bet.

With a general lack of volatility, the agriculture sector could be a place where investors could start looking to tip the scale of returns in their favor with the least amount of risk. Within this sector, three specific stocks could lead to a reversal from its current low.

Actions like Deere & Co. NYSE:DE, Corteva Inc. NYSE: CTVAAND Archer-Daniels-Midland Co. NYSE:ADM each deserves credit for an exceptional watchlist. Before investors weigh in, here’s the main trend driving all three companies today.

2024: The year of the farmer

According to investor presentations from CF Industries Holdings Inc. NYSE:CFIn recent months, global stock-to-use ratios have reached a cyclical low.

Focusing on grains and oilseeds, some of the major inputs into animal feed and human consumption through vegetable cooking oils, global supply must see a replenishment soon or risk continued food inflation.

Understanding that farming likely can’t happen without Deere tractors and other agricultural machinery, investors can view this stock as the first to get “paid for” in this industry value chain. CTVA seeds and plant protection products must guarantee optimal agricultural yields in this new wave of production.

Last but not least, these products (once harvested) need to be stored and transported, where Archer-Daniels Services steps in to be the last to get “paid”. Profit waterfall is important to investors as they all present different opportunities and characteristics.

For those in a hurry, Deere Stock is the best solution

Markets now pay a price-to-book (P/B) ratio of 5.2x for Deere stock, higher than the 2.6x valuation of the agricultural machinery and equipment sector. There has to be a good reason for the markets to pay a 100% premium for Deere stock over its competitors.

One reason is the company’s outdated earnings per share (EPS) projections, with analysts forecasting a 2.5% decline for the year. The contradiction is Deere’s price target of $433.3, which calls for an upside of up to 10% from where the stock is trading today.

While reporting some disappointing numbers in its first quarter 2024 presentation, there is one golden nugget for investors to remember. Deere’s turf and utility equipment sales increased by double digits, with construction and forestry following the same trend.

With the ISM Services PMI showing more than three months of expansion for the agriculture and forestry sector, Deere’s business could be set to exceed analysts’ and management’s expectations this year.

By far the biggest name on the list, with a market capitalization of $110 billion, Deere’s low beta may offer investors a less bumpy way to ride the sector’s breakout.

Corteva can satisfy your need for excitement

Trading at 88% of their 52-week high, Corteva shares now command a 458% premium to the Agricultural Production sector’s 9.3x P/E valuation. This year, expected EPS growth of 22.2% could justify the markets paying a P/E of 53.6x for the stock today.

As a key pillar in the agricultural sector, institutions understand that the world will only increase its stock-to-use ratio with Corteva’s chemicals, and its market capitalization proves it. The company’s $38 billion surpasses CF Industries’ $15 billion, and even The Mosaic Company NYSE:MOS $9.7 billion.

Analysts at KeyCorp NYSE: KEY I think the stock could go as high as $66 per share, which is 21% higher than today’s price. The company’s quality and market positioning are evident in its institutional ownership of 81.5% and $22.9 billion in institutional inflows over the past 12 months.

Archer-Daniels, an obvious game

This stock’s 9.5x P/E ratio presents a 17.3% discount to Deere’s valuation and an even steeper 82% discount to Corteva’s multiple. This is logical, since this is the last company to be paid after the cultivation process, so the markets will not be too enthusiastic.

However, Bank of America Co. NYSE:BAC he had a long-term vision. The bank’s analysts have set a $74 price target for the stock, predicting an upside of 21.3% from the current price.

Archer-Daniels shares are trading just 70% of their 52-week high, bringing more signs of stability for those avoiding a stomach-churning run. A low beta of 0.7 paired with a 3.3% dividend yield make Archer-Daniels the place to be during these times of high inflation.

Before you consider Bank of America, you’ll want to hear this.

MarketBeat tracks Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and Bank of America wasn’t on the list.

While Bank of America currently has a “Hold” rating among analysts, top analysts believe these five stocks are better buys.

View the five stocks here