After a year of extreme volatility where fertilizer prices touched record highs due to the war between Ukraine and Russia, prices are falling as demand and natural gas prices cool off.

The easing of fertilizer prices could benefit the agriculture industry as farmers are expected to grow more crops by applying more fertilizer, helping boost production and meet demand. Although the prices of fertilizers are cooling off, the industry is expected to witness consistent demand due to its importance in boosting agricultural production.

Moreover, as the global population is expected to rise, food demand should increase and keep the agriculture industry buoyed. Meanwhile, investors’ interest in agriculture stocks is evident from the iShares MSCI Agriculture Producers Fund’s (VEGI) 11.5% returns over the past six months.

Amid this backdrop, it could be wise for investors to add fundamentally strong agriculture stocks Archer-Daniels-Midland Company (ADM), Nutrien Ltd. (NTR), and The Mosaic Company (MOS) to their watchlist.

Archer-Daniels-Midland Company (ADM)

ADM procures, transports, stores, processes, and merchandises agricultural commodities, products, and ingredients worldwide. The company operates through three segments: Ag Services and Oilseeds; Carbohydrate Solutions; and Nutrition.

On September 14, 2022, ADM and PepsiCo (PEP) announced a 7.5-year strategic commercial agreement to collaborate on projects that aim to expand regenerative agriculture. The partnership is expected to reach up to 2 million acres by 2030, and reaching the partnership’s goals could eliminate 1.4 million metric tons of greenhouse gases. This should benefit ADM.

In terms of the trailing-12-month asset turnover ratio, ADM’s 1.78% is 116.5% higher than the 0.82% industry average. Likewise, its 17.85% trailing-12-month ROCE is 68.6% higher than the industry average of 10.59%.

For the fiscal third quarter that ended September 30, 2022, ADM’s revenues increased 21.4% year-over-year to $24.68 billion. Its adjusted net earnings increased 91.2% year-over-year to $1.05 billion. Additionally, its adjusted EPS came in at $1.86, representing a 91.8% increase from the prior-year quarter.

ADM’s EPS and revenue for the quarter ended December 31, 2022, are expected to increase 10.4% and 9.1% year-over-year to $1.66 and $25.19 billion, respectively. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. The stock has gained 17.6% over the past six months to close the last trading session at $86.23.

ADM’s strong fundamentals are reflected in its POWR Ratings. It has an overall A rating, which translates to a Strong Buy in our proprietary rating system. It is ranked #3 out of 28 stocks in the Agriculture industry. It has an A grade for Growth and a B for Sentiment.

Click here to see the additional ADM ratings for Value, Momentum, Stability, and Quality.

Nutrien Ltd. (NTR)

Headquartered in Saskatoon, Canada, NTR provides crop inputs and services. It offers potash, nitrogen, phosphate, sulfate products, and financial solutions. The company also distributes crop nutrients, crop protection products, seeds, and merchandise products in the United States, Canada, South America, and Australia.

In November, NTR announced the pricing of a $500 million aggregate principal amount of 5.900% senior notes due November 7, 2024, and a $500 million aggregate principal amount of 5.950% senior notes due November 7, 2025. The company intends to use the net proceeds to reduce indebtedness, finance working capital, and general corporate purposes.

In terms of the trailing-12-month gross profit margin, NTR’s 42.74% is 39.4% higher than the 30.67% industry average. Its 11.90% trailing-12-month levered FCF margin is 130.8% higher than the industry average of 5.16%. Likewise, its 32.02% trailing-12-month EBITDA margin is 56.7% higher than the industry average of 20.43%.

NTR’s sales for the third quarter ended September 30, 2022, increased 35.9% year-over-year to $8.19 billion. Its net earnings increased 118% year-over-year to $1.58 billion. 

Additionally, its adjusted EBITDA increased 50.2% year-over-year to $2.47 billion, while its adjusted net EPS came in at $2.51, representing an 81.9% increase from the prior-year quarter. 

Analysts expect NTR’s EPS and revenue for the quarter ended December 2022 to increase 11.1% and 7.7% year-over-year to $2.74 and $7.62 billion, respectively. The stock has gained 5.3% year-to-date to close the last trading session at $74.32. 

It is no surprise that NTR has an overall rating of B, equating to Buy in our proprietary rating system. It is ranked #6 in the same industry. Moreover, it has a B grade for Growth, Value, and Quality.

We have also given NTR grades for Momentum, Stability, and Sentiment. Get all NTR ratings here. 

The Mosaic Company (MOS)

MOS produces and markets concentrated phosphate and potash crop nutrients in North America and internationally. The company operates through three segments: Phosphates; Potash; and Mosaic Fertilizantes.   

On December 16, 2022, MOS declared a quarterly dividend of $0.20 per share on its common stock, payable on March 16, 2023, to stockholders of record as of the close of business on March 2, 2023.

In terms of the trailing-12-month asset turnover ratio, MOS’ 0.83% is 8.9% higher than the 0.76% industry average. Its 33.86% trailing-12-month ROCE is 166.5% higher than the industry average of 12.70%. Likewise, its 34.12% trailing-12-month EBITDA margin is 67% higher than the industry average of 20.43%.

MOS’ net sales increased 56.5% year-over-year to $5.34 billion for the third quarter that ended September 30, 2022. Its gross margin increased 73.7% year-over-year to $1.50 billion. Net earnings attributable to MOS increased 126.3% year-over-year to $841.70 million.

Additionally, adjusted EPS attributable to MOS increased 138.5% year-over-year to $3.22. Also, its adjusted EBITDA increased 74% year-over-year to $1.68 billion. 

MOS’ EPS and revenue for the quarter ended December 2022 are expected to increase 27.7% and 15.5% year-over-year to $2.49 and $4.44 billion, respectively. Over the past year, the stock has gained 12% to close the last trading session at $44.83. 

MOS’ solid prospects are reflected in its POWR Ratings. The company has an overall rating of B, which equates to Buy in our proprietary rating system. It is ranked #9 in the Agriculture industry. In addition, it has an A grade for Value and a B for Growth and Quality. 

In total, we rate MOS on eight different levels. Beyond what we stated above, we have also given MOS grades for Momentum, Stability, and Sentiment. Get all MOS ratings here.

ADM shares were trading at $86.48 per share on Wednesday afternoon, up $0.25 (+0.29%). Year-to-date, ADM has declined -6.86%, versus a 2.92% rise in the benchmark S&P 500 index during the same period.

About the Author: Malaika Alphonsus

Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions. More...

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