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Key Points

  • Global crop supplies reached a cyclical low recently, needing the agricultural sector to step up its production soon. 
  • Three stocks come into play as critical industry supporters, offering investors different risk and reward metrics.
  • From high growth to low betas and high dividends, investors can serve their portfolios accordingly during this cycle. 
  • 5 stocks we like better than Bank of America

Every cycle in the economy brings a different set of opportunities for investors. These are weighted as a balance between risk and potential reward. Depending on market conditions, the scale may tip to one side or the other. Today’s environment may pose a higher-than-desired risk for most investors, so boring names may be the best place. 

With an overall lack of volatility, the agricultural sector could be one place for investors to start looking to tip the reward scale in their favor at the least risk. Within this industry, three specific stocks could lead to a turnaround in its current bottoming. 

Stocks like Deere & Co. NYSE: DE, Corteva Inc. NYSE: CTVA, and Archer-Daniels-Midland Co. NYSE: ADM each have merit for a breakout watchlist. Before investors dig in, here’s the primary trend driving all three companies today. 

2024: The Year of The Farmer

According to investor presentations from CF Industries Holdings Inc. NYSE: CF, global stocks-to-use ratios have reached a cyclical bottom in the past few months. 

Focused on grains and oilseeds, some of the main factors in animal feed and human consumption through vegetable cooking oils, the world supply needs to see a restock soon or risk continued food inflation. 

Understanding that farming probably can’t occur without Deere’s tractors and other farming machinery, investors can see this stock as the first to get ‘paid’ in this industry value chain. CTVA’s seed and crop protection products must ensure optimal farm yields in this new production wave. 

Last but not least, these commodities (once harvested) need to be stored and transported, where Archer-Daniels services step in to be the last to get ‘paid.’ The profit waterfall matters to investors since they all carry different opportunities and characteristics. 

For Those in A Hurry, Deere Stock is Best

DE

Deere & Company

$393.33

-0.73 (-0.19%)

(As of 04:27 PM ET)

52-Week Range
$345.55

$450.00

Dividend Yield
1.49%

P/E Ratio
11.45

Price Target
$433.28

Markets now pay a 5.2x price-to-book (P/B) ratio for Deere stock, above the farm machinery & equipment industry’s 2.6x valuation. There must be a good reason for markets to pay a 100% premium for Deere stock instead of its competitors. 

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

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

With the ISM services PMI index showing more than three months of expansion for the agriculture and forestry industry, Deere’s business could be set up to beat analyst and management expectations this year. 

Corteva Can Fill Your Need for Thrill

$54.92

+0.22 (+0.40%)

(As of 04:27 PM ET)

52-Week Range
$43.22

$61.87

Dividend Yield
1.17%

P/E Ratio
53.84

Price Target
$63.29

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

As a critical pillar in the farming industry, institutions understand that the world will only raise its stocks-to-use ratio with Corteva’s chemicals, and its market cap shows. The company’s $38 billion jumps over CF Industries’ $15 billion, and even The Mosaic Company’s NYSE: MOS $9.7 billion. 

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

Archer-Daniels, a Discount Play

ADM

Archer-Daniels-Midland

$60.10

-0.90 (-1.48%)

(As of 04:27 PM ET)

52-Week Range
$50.72

$87.30

Dividend Yield
3.33%

P/E Ratio
9.39

Price Target
$67.50

This stock’s 9.5x P/E ratio comes at a discount of 17.3% to Deere’s valuation and an even steeper 82% discount to Corteva’s multiple. This makes sense, as this is the last company to get paid after the farming process, so markets won’t be too excited. 

However, Bank of America Co. NYSE: BAC took the long view. Analysts at the bank slapped a on the stock, calling for a 21.3% upside from its current price. 

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

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

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

View The Five Stocks Here

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