The prices of most agricultural commodities recovered remarkably in the second half of 2020 following positive developments on the COVID-19 vaccine front. This is evidenced by Invesco DB Commodity Index Tracking ETF’s (DBC) more than 18% gain in the second half of 2020 following a 23% decline in the first half. In fact, DBC has returned 46% over the past year. The recovery pace of agriculture commodities has also been remarkable as reflected in by Invesco DB Agriculture ETF’s (DBA) 14.7% gain over the past year.
One of the major reasons behind the bullish commodity market is rock bottom interest rates, which have heightened inflation expectations. This is leading more money into the commodity markets.
U.S. food producers faced many challenges in 2020. But the U.S. Department of Agriculture (USDA) came to the rescue with several relief measures to offset losses and stabilize markets. These included the Coronavirus Food Assistance Program (CFAP) that delivered more than $23 billion in direct payments to help compensate farmers, and the Farmers to Families Food Box Program that linked farmers to consumers, distributing more than 100 million boxes of food to people in need. Now, the re-emergence of China as an important buyer of agricultural products is further driving the commodity prices up. Recent weakness in the U.S. dollar is also driving increased international trade in agricultural commodities.
Against this backdrop, we think agricultural companies Archer-Daniels-Midland Company (ADM), Nutrien Ltd. (NTR), and The Mosaic Company (MOS) are well-positioned to deliver significant returns in the coming months.
Archer-Daniels-Midland Company (ADM)
ADM, a premier agricultural origination and processing company, is a global leader in human and animal nutrition. The company processes oilseeds, corn, wheat, cocoa and other agricultural commodities. It operates through three segments: Agricultural Services and Oilseeds, Carbohydrate Solutions, and Nutrition.
In January, ADM won the 2021 BIG Innovation Award from the Business Intelligence Group for its groundbreaking probiotic strain, Bifidobacterium lactis (BPL1). This probiotic is easily accessible to the masses and gives functional health benefits to foods and products. The recognition will add more credibility to the probiotic.
This week, ADM released a new policy to protect forests, biodiversity and communities that further represents its commitment to sustainable, ethical and responsible production. This new policy is expected to help the company reduce the impact of its operations and supply chain and continue to hold the suppliers to high standards.
ADM’s total revenues have increased 10.1% year-over-year to $17.98 billion in the fourth quarter, ended December 31, 2020. Its segment operating profit has risen 21.9% from its year-ago value to $1.14 billion, while its adjusted EPS has improved 35.6% to $1.22 over the same period.
Analysts expect ADM’s revenues to grow 9% year-over-year to $16.32 billion in the current quarter (ending March 31, 2021). A consensus EPS estimate of $1.02 for the first quarter represents a 59.4% improvement from the year-ago value. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in each of the trailing four quarters. The stock has gained 23% over the past six months.
ADM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
ADM has a B grade for Sentiment, Value, and Stability. Of the 31 stocks in the Agriculture industry, the stock is ranked #3.
In total, we rate ADM on eight different levels. Beyond what we’ve stated above, we have also given ADM grades for Quality, Growth, and Momentum. Get all of ADM’s ratings here.
Nutrien Ltd. (NTR)
Based in Canada, NTR is a leading provider of crop inputs and services, playing a critical role in helping growers increase food production in a sustainable manner. The company operates through four segments: Retail Agriculture Solutions (Retail), Potash, Nitrogen, and Phosphate.
NTR’s sales have increased 17% year-over-year to $4.05 billion in the fourth quarter, ended December 31, 2020. Its adjusted ebitda has risen 15.7% from its year-ago value to $768 million, while its adjusted EPS has improved 787.5% to $0.55 over the same period.
A consensus revenue estimate of $22.25 billion for the current year (ending December 31, 2021) represents an 11% improvement from the previous year. Its EPS of $2.66 for the current year is expected to grow by 47.9%. Furthermore, the company beat the Street’s earnings estimates in three out of the trailing four quarters. The stock has gained 36.8% over the past six months.
NTR’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. NTR has a B grade for Growth and Sentiment. It is currently ranked #6 of 31 stocks in the same industry.
Click here to see the additional POWR Ratings for NTR (Momentum, Stability, Quality, and Value).
The Mosaic Company (MOS)
Based in Florida, MOS is a leading producer and marketer of concentrated phosphate and potash crop nutrients. The company delivers phosphates, potash fertilizers and feed ingredients to the global agriculture industry. It operates through three segments: Phosphates, Potash, and Mosaic Fertilizantes.
Yesterday, MOS announced a strategic collaboration with AgBiome to discover, develop and launch novel biological approaches to enhancing soil fertility. The collaboration should leverage MOS’ industry-leading expertise in soil health and product development and its global distribution and sales network, thereby significantly benefiting Mosaic’s soil health portfolio.
On March 9, MOS forged a strategic partnership with Sound Agriculture to develop a revolutionary nutrient efficiency product that would boost yields across major row crops and improve soil health. This product collaboration is expected to enhance MOS’ existing soil health portfolio, providing another tool for a comprehensive, well-balanced approach to plant nutrition.
MOS’ net sales have increased 3.2% sequentially to $2.46 billion in the fourth quarter, ended December 31. Its operating earnings have risen 199.3% from the previous quarter to $294.80 million, while its EPS has improved significantly to $2.17 over the three-month period.
Analysts expect MOS to report EPS of $0.48 in the current quarter (ending March 31, 2021), up 900% year-to-year. A consensus revenue estimate of $2.21 billion for the current quarter Represents a 23% improvement from the previous year. Also, the company beat the Street’s earnings estimates in each of the trailing four quarters. The stock has gained 60.5% over the past six months.
It is no surprise that MOS has an overall B rating, which translates to Buy in our POWR Ratings system. MOS has an A grade for Growth and a B for Value and Sentiment. It is ranked #9 in the same industry.
Click here to see the additional POWR Ratings for MOS (Stability, Quality, and Momentum).
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
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ADM shares were trading at $56.50 per share on Thursday afternoon, up $0.58 (+1.04%). Year-to-date, ADM has gained 12.86%, versus a 3.85% rise in the benchmark S&P 500 index during the same period.
About the Author: Rishab Dugar
Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands. More…
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