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Is it Time to Buy Agriculture Stocks?

Tracey Ryniec
  • (0:30) - Agriculture Stocks: Ignored By Investors
  • (2:15) - Equipment Manufactures
  • (8:30) - Fertilizer Market
  • (15:50) - Nitrogen Producers
  • (20:30) - Episode Roundup: Podcast@Zacks.com

Welcome to Episode #88 of the Zacks Market Edge Podcast.

Every week, host and Zacks stock strategist, Tracey Ryniec, will be joined by guests to discuss the hottest investing topics in stocks, bonds and ETFs and how it impacts your life.

But in this episode, due to the upcoming holiday, she’s going solo to talk about one of her favorite investing industries: the agriculture stocks.

This is a cyclical industry. It does well when commodity prices are high and the farmers are getting rich, and then it falls when the reverse happens. A few years ago, the farmers were being compared to bankers in terms of wealth. But since then, as commodity prices have dropped, there has been a 3-year farming recession.

Sales of farming equipment have fallen every year during that time. And on the fertilizer side, overproduction has kept prices low even though demand has remained stable.

A Rebound in 2017?

2016 was a difficult year for the farming industry. But in their first quarter earnings reports, many companies began to talk about the market in a new, more optimistic light.

While 2017 is still expected to see low fertilizer prices, they believe the worst is likely over and that there will be improvement into 2018.

If that’s true, is now a buying opportunity in the stocks?

Wall Street is completely ignoring this industry. As a result, several of them are trading near multi-year lows.

Two Different Segments: Equipment versus Fertilizers

Tracey looks at two different areas of agriculture, the equipment makers and the fertilizer producers, which have split personalities.

On the equipment side, Deere and AGCOare seeing rising earnings estimates. Both stocks are Zacks Rank #1 (Strong Buys).

1.       Deere (DE) recently got a boost thanks to its announced acquisition of Wirtgen Group, which will complement the company’s Construction & Forestry unit. It will be in the Top 5 of road construction equipment makers after the deal closes.

2.       AGCO (AGCO) is seeing a bottoming in demand after 3 years of declines. Brazil is expected to finally rebound this year.

Both of these stocks are up in 2017 with Deere up 20% and AGCO up 16.6% year-to-date.

Is it too late to get in?

The Fertilizer Stocks: A Buying Opportunity or Not?

Tracey also took a look at the fertilizer stocks, which have been completely battered in this downturn.

1.       Agrium (AGU) is merging with Potash this year to form Nutrien. It will be the largest fertilizer company in the world. Is Tracey a fan of this merger?

2.       Mosaic (MOS) shares are down 20% year-to-date and near 5-year lows. But are there reasons to be optimistic about the second half of 2017 for this potash and phosphate producer?

3.       CF Industries (CF) is the nitrogen fertilizer maker. Non-North American producers dumped excess supply onto the North American market earlier this year which depressed prices in the first quarter. However, demand from American farmers has been strong. Shares are down 11%. It's a Zacks Rank #5 (Strong Sell) but if those estimates turn around, could this be one to buy?

She used to own Potash in her own personal portfolio but recently threw in the towel and sold her shares. It is probably a sign that this industry could be on the upswing since Tracey used to be a diehard bull on the fertilizer stocks.

Usually the bottom is in when even the diehards give up.

What else should you know about the agriculture stocks?

Find out on this week’s podcast.

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