World food prices rose for the eighth consecutive month in January. The FAO Food Price Index averaged 113.3 points in January 2021, registering its highest monthly average since July 2014. With crop supplies dwindling and the side effects of COVID-19 pandemic-related monetary policy easing, farm commodity prices are likely to continue rising in the coming months.
Consequently, the agricultural sector has been garnering a lot of investor attention lately. Thanks to a combination of increased demand from areas experiencing economic recovery, a weaker dollar, poor weather and disrupted global supply chains, the optimism surrounding food prices is not likely to diminish anytime soon.
This, we think, should bode well for Archer-Daniels-Midland Company (ADM) and Nutrien Ltd. (NTR), which deliver agricultural products. With crop prices on the upswing, these stocks should generate substantial returns in the near term.
Archer-Daniels-Midland Company (ADM)
Headquartered in Chicago, Illinois, ADM procures, processes, and merchandises agricultural commodities, products, and ingredients in the United States and internationally. It operates through Ag Services and Oilseeds, Carbohydrate Solutions, and Nutrition segments and is also engaged in the agricultural commodity and feed product import, export, and distribution.
In December, ADM announced that it will end production of dry lysine in the first half of this year to focus solely on meeting customer needs for liquid and encapsulated lysine products. The company’s investment in cutting-edge ingredients and services should help it strengthen its business portfolio significantly.
In November, ADM announced plans to collaborate with InnovaFeed on the construction and operation of the world’s largest insect protein production site in Decatur, Illinois. This project should help ADM meet fast growing demand for insect feed in the U.S. and worldwide and take the next steps to innovate and grow its business.
ADM’s operating profit has increased 21.9% year-over-year to $1.14 billion in the fourth quarter ended December 31, 2020. Its gross profit grew 15.7% from its year-ago value to $1.35 billion, while its net income increased 36.3% year-over-year to $687 million. Its EPS rose 35.6% from the prior-year quarter to $1.22.
A consensus EPS estimate of $1.02 for the current quarter, ending March 30, 2021, represents a 59.4% improvement year-over-year. Also, ADM beat the Street’s EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $16.32 billion for the current quarter represents a 9% increase from the same period last year. The stock has gained 41.9% over the past year.
ADM’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
ADM has a B grade for Value, Stability, and Momentum. Within the C-rated Agriculture industry, it is ranked #4 of 32 stocks.
In addition to the POWR Ratings grades I’ve just highlighted, you can see the ADM ratings for Quality, Growth, and Sentiment.
Nutrien Ltd. (NTR)
Incorporated in 2017, NTR offers crop inputs, services, and financial solutions worldwide. The company also distributes crop nutrients, crop protection products, seeds, and merchandise products through approximately 2,000 retail locations in the United States, Canada, South America, and Australia.
Last month, the Toronto Stock Exchange accepted NTR’s notice of repurchase of up to five percent of its outstanding common shares. The company believes this move is in tune with its objective of delivering a strong return on capital to its shareholders over time.
In late January, NTR expanded its proximity monitoring and contact tracing technology, Proximity Trace from Triax Technologies, to combat the spread of COVID-19 at NTR sites. This should help the company minimize operational shutdowns and reduce associated costs and product delivery delays.
NTR’s sales increased 17% year-over-year to $4.05 billion in the fourth quarter ended December 31. Its adjusted EBITDA grew 16% from the year-ago value to $768 million, while its free cash flow rose 42% year-over-year to $196 million over this period. Its net cash provided by operating activities increased 44.8% from the prior-year quarter to $285.21 million. The company reported net income of $316 million versus a net loss of $48 million in the prior-year quarter.
A consensus EPS estimate of $2.60 for fiscal 2021 represents a 44.4% improvement year-over-year. The consensus revenue estimate of $22.27 billion for the current year indicates a 11.1% increase from the same period last year. The stock has gained 33.4% over the past year.
It is no surprise that NTR has an overall rating of B, which equates to Buy in our POWR Ratings system. NTR has a B grade for Growth, and Sentiment. In the same industry, the stock is ranked #6.
To see additional POWR Ratings for Stability, Value, Momentum and Quality for NTR, click here.
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ADM shares were trading at $57.23 per share on Monday afternoon, up $0.65 (+1.15%). Year-to-date, ADM has gained 14.32%, versus a 4.15% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.
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