One of the biggest challenges that the world faces is an impending shortage of food. The World Food Program estimates that 345 million people globally face acute food insecurity in 2023. Considering the factors of uncertain weather conditions and geopolitical tensions, the food shortage challenge will aggravate further. Besides the long-term challenges, it’s important to mention that the El Nino is likely to continue through spring 2024. This can possibly imply drought conditions will be present in various parts of the world. From an investment perspective, agriculture stocks can be potential value creators.
Adecoagro (NYSE:AGRO) is among the most undervalued agriculture stocks. As an overview, Adecoagro is based in South America and is involved in the farming of sugar, rice and other agricultural products. The Company is also in the business of ethanol and land transformation.
It’s worth noting that Adecoagro currently commands a market valuation of $1.15 billion. For the first half of 2023, Adecoagro reported revenue of $654 million and adjusted EBITDA of $225 million. The key point to note is that as the price of agricultural commodities trends higher, it’s likely that EBITDA margin will expand. The Company is therefore positioned for robust cash flows. And, even after an upside of 45% year-to-date (YTD), AGRO stock only trades at a forward price-earnings ratio of 6.6.
Bunge (NYSE:BG) is another undervalued name among agriculture stocks. As an overview, the Company’s objective is to help farmers connect with, and deliver food, to consumers. Currently, the Company’s core segments include agribusiness, refined & specialty oil and milling. However, the agribusiness remains the gross profit driver. It’s worth noting that Bunge has presence in 40 countries. This provides the Company with a robust farmer network and the agribusiness segment is likely to flourish on global food shortage concerns.
From a financial perspective, Bunge reported discretionary cash flow of $2.1 billion in the last 12 months. This provides high financial flexibility for capital investments. Bunge has also indicated that the Company is evaluating a pipeline of bolt-on merger and acquisition opportunities. The growth outlook therefore looks interesting. BG stock trades at a forward price-earnings ratio of 8.3 and offers a dividend yield of 2.59%. Considering the industry outlook, I would not be surprised if BG stock offers total returns of 50% to 75% in the next 24 months.
Nutrien (NYSE:NTR) stock has trended lower by 13% YTD. The correction seems like a good opportunity to accumulate NTR stock that is trading at an attractive forward price-earnings ratio of 11.7. Further, NTR stock offers a dividend yield of 3.5%.
As an overview, Nutrien is a provider of crop nutrients, crop protection products, seeds and other products. It’s worth noting that the Company’s revenue and EBITDA was negatively impacted in the first half of 2023 on the back of lower realized prices. However, Nutrien continues to guide for healthy operating cash flow of $4.4 to $4.9 billion. This provides ample flexibility for dividends; share repurchase and capital investments.
The concern is that a potential dry season can negatively impact the demand for crop nutrients and crop protection. The long-term outlook is however positive with global food shortage being the catalyst. Further, Nutrien has strong presence in Latin America and Asia. The addressable market is therefore significant.
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.