Crisis & Opportunity: 3 Agriculture Stocks Poised for Growth
According to the World Food Program, the world faces a hunger crisis of unprecedented proportions. To put things into perspective, 345 million people globally face acute food insecurity in 2023. This demands action from the government, private, and household sectors. It’s also clear that the food shortage and uncertain weather conditions will cause significant food inflation in the coming years. From an investment perspective, it’s a good idea to consider exposure to some of the best agriculture stocks.
Another important fact to note is that the number of farms globally has declined. It’s estimated that “farms worldwide would drop from 616 million in 2020 to 272 million in 2100.” I believe farmland valuation will likely skyrocket in the coming decades. It’s, therefore, a good idea to consider exposure to agriculture companies with a considerable land bank.
With this overview, let’s discuss three agriculture stocks that can deliver multi-bagger returns in the coming years.
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Adecoagro (AGRO)
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Adecoagro (NYSE:AGRO) stock has already been in an uptrend with returns of 51% for year-to-date. Valuations remain attractive, with the stock trading at a forward price-earnings ratio of 11.7. AGRO stock also offers a dividend yield of 2.88%.
The first point to note is that Adecoagro commands a market valuation of $1.2 billion. In comparison, the company’s value of farmland is $745 million. AGRO stock is worth considering with the asset generating cash flows and the valuation likely to swell.
Besides the valuation factor, Adecoagro has been reporting strong quarterly numbers. For Q3 2023, the Company reported 27% growth in EBITDA on a year-on-year basis to $155.3 million. The adjusted EBITDA margin was also expanded by 840 basis points to 40.7%. With encouraging growth metrics and a decline in leverage, the outlook seems positive.
I must add that Adecoagro is well diversified, with a presence in sugar, ethanol, energy, crops, rice, and dairy. The area under cultivation will likely increase in the coming years, along with price realization. This will boost growth and cash flows.
Mission Produce (AVO)
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Mission Produce (NASDAQ:AVO) is another agriculture stock to consider for potential multi-bagger returns. It’s worth noting that AVO stock has declined by 45% in the last 12 months. The correction seems to be overdone, and fresh exposure can be considered at current levels.
As an overview, Mission Produce claims to be a global leader in the avocado business. The Company is vertically integrated and operates four state-of-the-art packing facilities in key growing locations globally. In Addition, the Company is involved in the retailing of fresh mangoes in 25 countries since 2021.
For Q3 2023, Mission Produce reported 23% growth in volume of avocado sold. However, revenue declined due to lower price realization. Considering the focus on health, I believe the long-term outlook for avocados is positive. As price realization improves in the coming years, AVO stock will likely surge. At the same time, diversification towards mangoes and blueberries is likely to yield results.
Farmland Partners (FPI)
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Farmland Partners (NYSE:FPI) is a real estate company that owns and manages high-quality farmland in the United States. FPI stock has remained sideways in the last 12 months and offers a dividend yield of 1.9%.
The Company owns a portfolio of 190,000 acres of owned and managed farmland. Of this, 159,000 is owned acres with over 100 tenants. It’s worth mentioning here that the gross real estate book value of the farmland is $1.1 billion. Considering this, Farmland Partners looks attractive at a market valuation of $620 million.
The Company’s revenue model is in the form of fixed farm rents, management fees, and and crop sales. For Q3 2023, Farmland reported a net income of $4.3 million and an adjusted EBITDA of $6.3 million.
With a huge land bank, cash flow visibility is clear, and the Company has been continuously engaged in the acquisition and sale of farmland. Given the global decrease in arable land, the Company will likely benefit as farmland value swells.
On the date of publication, Faisal Humayun did not hold (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.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
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