Agriculture is a mammoth industry with stocks covering fertilizers, seeds, agricultural chemicals, farm equipment, food processing, and more. However, the industry tends to be cyclical in nature. It booms when commodity prices are high and the farmer’s income is high. But as commodity prices fall, it takes the industry down with it.
Harvests in the last four years have been near record levels. However, these higher grain inventories pressurized commodity prices, and resulted in lower farm income. Industry demand in most global markets remains at historically low levels as a result of weaker economic conditions. Deteriorating farm economics negatively impacted farmer sentiment, which in turn affected demand for agricultural equipment demand. The companies responded by tuning down production and closely managing inventories.
However, things are looking up this year with companies delivering better results and improved outlook. In 2017, agricultural exports are projected to rise 3% to $134 billion. U.S. agricultural exports are projected to account for 33% of farm sector gross earnings in 2017.
We believe the agricultural play stocks are poised to gain in the long term. Given that the global population is expected to soar to 9.5 billion by 2050, the agricultural sector faces a huge challenge to produce enough food as arable land shrinks. To meet the increased demand for food, fiber, and feed, analysts suggest agricultural output will have to double by that year.
Maximizing crop yields and farm productivity will be vital. Companies that manufacture farm equipment such as tractors, harvesters, and sprayers will assume an increasingly important role. To sum up, farm equipment manufacturers have huge growth potential ahead, and consequently make for great investments.
Currently the Zacks categorized Manufacturing - Farm Equipment is enjoying a Zacks Industry Rank of 11. The favorable rank places the industry in the top 4% of the 250+ groups enlisted. In the past one year, the Manufacturing - Farm Equipment industry has clocked a gain of 49.6%, outperforming the S&P 500’s advance of 17.9%.
In this context, we focus on four companies in the industry that are must buys given their favorable Zacks Ranks, price movements and earnings estimate revisions.
Deere & Company DE, producer of agricultural equipment and a leading manufacturer of construction, forestry, and commercial and consumer equipment flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Deere has a long-term earnings growth rate of 9.17%. Deere outpaced the Zacks Consensus Estimate in the trailing four quarters, generating an encouraging positive average earnings surprise of 70.41%. The estimate for fiscal 2017 climbed 31% to $6.31 in the past 60 days and for fiscal 2018 also moved north 23% to $6.83. The projected growth rate for fiscal 2017 is 31.12% and for fiscal 2018 is 8.10%.
Deere has a dividend yield of 1.97%. The stock has surged 55.1% in the last one year.
AGCO Corporation AGCO, manufacturer and distribution of farm equipment, machinery and replacement parts in the U.S. and Canada, sports a Zacks Rank #1.
The company has delivered positive earnings surprises in the last four quarters, with an average beat of 40.39%. The company has expected long-term earnings per share growth rate of 13.06%. Sentiments are in favor of the company, as evident in the positive earnings estimate revisions of 11% for 2017 and 10% for 2018 in the last 60 days. The stock has a dividend yield of 0.84%. Its shares have gained 46.2% in the last one year.
Alamo Group Inc. ALG, designs, manufactures, and sells agricultural equipment and infrastructure maintenance equipment for governmental and industrial use worldwide. It carries a Zacks Rank #2 (Buy).
Earnings estimates for fiscal 2017 and fiscal 2018 have both moved up 3% in the past 60 days. The projected growth rate for fiscal 2017 is 13.81% and for fiscal 2018 at 8.86%. The stock has a dividend yield of 0.44%. Its shares have gained 45.5% in the last one year.
Titan International, Inc. TWI manufactures and sells wheels, tires, wheel and tire assemblies, along with undercarriage systems and components for various agricultural equipment as well as for off-highway vehicles. The stock also carries a Zacks Rank #2.
The Zacks Consensus Estimate for fiscal 2017 has gone up in the past 60 days. The projected growth rate for fiscal 2017 is 84.66% and for fiscal 2018 at 487.93%. The stock has a dividend yield of 0.17%. Its shares have gained 92.2% in the last one year.
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