Buy This, Not That: Looking for Fertile Profits With These 6 Ag Stocks

Shah Gilani|July 31, 2024

A Note From Amanda: Nowhere is the idea of seasonality more obvious than in the commodities sector… and specifically, agriculture. But what about the companies that support the growers, farmers, and producers? In this edition of Buy This, Not That… Shah shares six stocks worth a look.

While there are countless other seasonal plays in the markets… Shah is releasing details on his No. 1 play for August TOMORROW. It’s a unique, “undefeated” stock that has gone up every August since 2014. And he’s got a great way to play it – with an average gain of 38% for 5 years straight. All it takes is holding during August. Get the details – plus the tickers of other undefeated plays – right here.

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Life is full of rhythms and cycles – from the seasons changing to the ebb and flow of the tides.

The agriculture sector grows and wilts by the changing of the seasons… the weather… and supply/demand.

But what about the companies that support the ag business worldwide… from seeds to fertilizers to pest control? Do they follow the same cycles… or are they built for all four seasons?

It’s a mixed crop with the six companies I want to show you today.

I have a giant in the field that has had some trouble… a fertilizer specialist with a juicy dividend… and a pesticide player that’s fallen off a cliff, but could poised for a pop.

Plus, three more industry players with potential… and pitfalls.

See which are BUYs and which are NOT… all in the latest episode of Buy This, Not That… your exclusive guide to the stocks that are worthy of your money – NOW.

Click on the thumbnail below to dive in.

 

TRANSCRIPT

Hey, everybody, Shah Gilani here with your weekly BTNT.

I’m sticking with seasonality this week because I’ve been talking a lot about it… Planting cycles, harvesting cycles, weather patterns. There are all kinds of cycles and seasonality impacts that affect stocks and commodities, which we can trade now with ETFs. There are all kinds of instruments affected by what I’m generally calling seasonality… cycles and other patterns that change, that you can predict, that you can see coming, and therefore, you can trade effectively.

I’m going to stick with that theme today because seasonality is something I’m going to be hitting a lot. There’s just a heck of a lot of it out there, and there are many opportunities as far as creating seasonality cycles.

This week, I’m going to be talking about some of the agricultural stuff I have been discussing. More specifically, I’m talking about the companies that help agricultural businesses around the world develop seeds, grow their products, water them, fertilize them, kill the weeds and pests that harm them, etc. It’s a group of companies that not a lot of people focus on, but there are some pretty cool names in there.

Let’s take it from the top. I’m going to give you some charts to look at here. Let me share my screen with you.

First up on this list of notable companies is Archer Daniels Midland (ADM). ADM is just a giant in the business. It’s always been, in my opinion, an extremely well-run company. It’s had its ups and downs.

You can look at this chart right here. You can see this big gap. I’m going to talk about that in a second.

But ADM, when you think about it, it’s plant-based proteins, processing. I’m going to put it into the industrial biotech area also. It’s got a lot going on. $31 billion-plus market cap. $92 billion in revenue for Archer Daniels Midland. Profit margin, 3.32%.

As far as its quarterly revenue growth year over year, that’s been pretty dull, if not bad, because it’s down about 10% year over year. And the quarterly earnings growth has been negative, too, at almost 37% off of last year’s terms of earnings growth.

So its growth has not been growing. It’s been sliding. But that can change, and I think it can change.

I think Archer Daniels Midland is a BUY down here.

I’m going to give you a couple of reasons. I like this gap. I like filling this gap in here. The stock’s trading at $62 and change. If you look at it on a longer-term basis, the stock – here’s what it’s capable of doing. It got up here, and we’re looking at almost a hundred bucks.

And we’re looking now back down here, fallen through here this gap, kind of fill this gap here, and I think we can head back up, and I think we can test $100. So I like Archer Daniel Midlands here.

I think it’s a BUY. It’s a long-term hold. It’s down again from $98 to the $50 range lately. You pick some up here, you think the market can go a little lower, and I don’t think we’re done with some corrective action here. So things can get lower if tech stocks falter here. The weight of the tech stocks falling on the market will probably bring all boats out with the tide.

You can maybe buy some ADM here, and you can pick up some more maybe at $50 if you’re lucky. If you’re really lucky, I would certainly buy some here, and I would certainly buy some if it got down to $51 or $50. I’d load up the truck with some ADM.

So there’s ADM as first up. It’s a BUY and a long-term hold.

Next up is Bunge Limited (BG).

BG, again, is in the processing industrial biotech business. Think of it as a grain producer, sugar, ethanol. It’s also in the milling business and processing. So it’s got a lot going on for it, and it looks pretty interesting.

Right here, it’s had a nice rise looking at a five-year chart.

But if you look at it closer, like two years, it’s really not doing much. Here it is at $113.

As far as quarterly revenue growth, it’s -12% year over year. And quarterly earnings growth is down 61% year over year. So its growth has turned negative on its earnings.

It’s not a buy here. It’s just a lot of nothing here. Where is it going to go? This is the kind of stock you look at and you think, well, maybe it’s got some prospects.

Some people might point out it’s got 5% short of float, so maybe it could have a pop. Sure it could. But where’s it really going to go?

There are better places for your capital. So as far as Bunge Limited, BG, it’s NOT a buy.

Next up is Scott’s Miracle-Gro (SMG). Anyone out there who has a lawn or is trying to grow their lawn knows about Scott’s Miracle-Gro. It is the largest fertilizer company for lawns, especially in the United States. Pretty big worldwide too. They’re also into hydroponics, and they had a life business that they were using for growth, which I think they’re going to sell off if they haven’t already.

Scott’s Miracle-Gro, SMG, has a $4 billion market cap, $3.42 billion in revenue. It looks ugly because it’s got a negative profit margin of almost -11%. Not doing so hot here. Anything that’s been around as long as Scott’s with a negative profit margin is a little bit scary.

The stock looks boring on a two-year basis, but on a five-year basis, it gets more interesting.

You’ve had this slide down here. It’s gone sideways over here. On a one-year basis, it’s started to make a move up. On a five-year basis, you look at it, it’s got a lot higher to go. We’re trading at just under $70, and up here, we’re talking about $254.

You know what? I’m going to put a little money into Scott’s. I think SMG is a buy. It’s definitely a long-term hold. Or if you want to buy LEAPS on it, maybe go out pretty far a couple years and buy LEAPS in the $150 range. I think you could do very well with Scott’s.

By the way, it’s got 15% short of float. It’s going to have its pops. And it’s got a dividend yield of 3.75%. You get paid to hold Scott’s. I like Scott’s down here. It’s a buy. You can buy some LEAPS on it and play it cheaply, or you can just collect the dividend, get paid to hold it while I think it moves up over time.

It’s a long-term BUY, but I like Scott’s down here. Scott’s Miracle-Gro, SMG.

Next up is Corteva (CTVA). Again, another name you may not be familiar with. It’s in the pesticides business, biologicals, and digital ag.

Looking at the charts, on a five-year basis, it’s been boring. On a one-year basis, it had a nice move, but it’s still flat. It kind of rolled over a little bit here.

This is a pretty big company. $38 billion-plus market cap, almost $17 billion in revenue, profit margin 3.32%, but it’s boring. It’s got a dividend yield of 1.15%, which isn’t very exciting. Forward P/E is 20. The trailing P/E is 56, so it’s pretty expensive on that basis.

I just don’t see any seasonality move here. I think this is going to hang up your capital and watch it dry, which isn’t very exciting.

As far as Corteva goes, it’s NOT a buy.

Now, Nutrien (NTR), looking at this chart, all you want to do is just shake your head. Here’s a five-year chart.

It’s had this long-term move up and then long-term move down. That doesn’t bode well because the trend lately is down. The two-year chart is pretty ugly.

Its revenue is $27 billion, profit margin is 3%. They have a dividend yield of about 4.3%, which sounds pretty attractive, but it’s not. Here’s why: The net income available to common shareholders, out of which they pay the dividend, is about $845 million. But the dividend costs them about $1.1 billion. So they’re going to have to cut that dividend.

I think that’s why the stock keeps getting hit like this because eventually, there’s going to be a dividend cut. There’s just nothing compelling to me in Nutrien to take any kind of position in it for any reason whatsoever. It’s NOT a buy.

Last but not least is FMC Corp. (FMC).

Again, they’re in pesticides, biologicals, agricultural sciences, a lot of cool stuff. Looking at the two-year chart, it’s fallen off a cliff.

But sometimes that’s not so bad. On a one-year basis, it’s flat as a pancake, and I’m okay with that because this stock is down from $135 to the $50s.

I’m not saying that’s a reason to buy just because it can go back up, but I’m saying this is a $7 billion market cap company with $4 billion in revenue. The profit margin is 27%. They’re going to figure their act out.

The dividend yield is 3.91% on a 24% payout ratio. In other words, of the net income available to common shareholders, they only take 24% of that to pay the dividend. They’ve got a pretty nice yield at 3.91%. Another little ticker: 8.5% of the floating shares have been shorted.

So I like FMC down here. I think this thing can have a pop. If it turns its house of cards around, I think we’re going to see an upturn here. Looking at the long-term basis, it looks ugly, but right here, it looks like it’s consolidating to me.

I think FMC is a buy down here. It’s a long-term buy and hold, but I could see you doubling your money on this in two to three years, which would be an awfully nice annualized return. So there you go. For FMC, I like it. It’s a BUY.

That’s it for this week. I’ll catch you guys next week with probably some more seasonal plays and some more cyclical ideas and just a lot more fun.

Catch you guys then. Cheers.