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Ag Industry: 3 Top-Ranked Stocks to Grow your Portfolio
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The stock market often moves in cycles, with different industry groups outperforming at different times. Cycles can occur due to various factors, including macroeconomic conditions, psychology, investor sentiment, and geopolitical factors.
For instance, in periods of economic expansion, technology and consumer discretionary may outperform. In the recent post covid bull cycle, software, internet content, and growth-oriented stocks led the way. In a contractionary, slower growth cycle, utilities, consumer staples, and value stocks will achieve higher returns. In the current environment, two Zacks industry groups that have been handily outperforming are the Agriculture – Operations group (ranked 31 out of 248) and the Agriculture – Products group (ranked 61 out of 248).
Image Source: Zacks Investment Research
Pictured: The Ag- Operations Group has been an area of refuge for investors in 2022.
While a strong industry group does not guarantee a stock’s success, it can increase the odds of success – and as investors, that’s all we can ask for. According to Zack’s studies, roughly half of a stock’s price movement can be attributed to the underlying industry group. The top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1. Below, we will cover three agriculture names with a highest possible Zacks Ranking of 1.
1. Cal-Maine (CALM - Free Report) is the number one shell egg producer and distributor. The company produces a mind-blowing 6.8 million eggs per hour and has captured 19% of the shell egg market share. Over the past 12 months, Cal-Maine has drastically outperformed the market and its peers, surprised on earnings in three out of four quarters, and is attempting to break out of a multi-month consolidation area. (Pictured below)
Image Source: Zacks Investment Research
Pictured: CALM is breaking out ahead of its earnings release later this month. The stock has been a super performer this year.
In the last reported quarter, CALM reported revenues that grew 103% year over year and swung to a profit from an EPS perspective. Zacks Consensus Estimates show a continued growth trajectory into 2023 as CALM gains traction in the space from top clients such as Costco Wholesale (COST - Free Report) , Walmart (WMT - Free Report) , andKroger (KR - Free Report) .
Image Source: Zacks Investment Research
Pictured: Zacks Consensus Estimates suggest continued momentum for CALM.
Cal-Maine’s impressive client list and industry position has made a high-growth company and an efficient one. CALM boasts a return on equity of 25%. Despite the impressive growth trajectory, the stock can also be viewed as a potential value play. The stock holds a forward P/E of just 11.43, which compares favorably to the S&P 500’s P/E of 16.99. Earnings are set to be released on December 28th.
2. Archer Daniels Midland (ADM - Free Report) is one of the leading producers of oilseeds, corn, wheat, cocoa, and other food products and ingredients. Like Cal-Maine, Archer Daniels Midland holds the best possible Zacks Ranking of 1. In the most recent quarter, ADM saw EPS rise by 92% on revenue growth of 21%. What’s driving the growth? Low supply. Brazil’s poor growing season and the ongoing war in Ukraine have been a catalyst for ADM. Though both countries are seeing disruptions due to different reasons, both are major agricultural contributors to the global economy. ADM has been filling the void.
Image Source: Zacks Investment Research
Pictured: ADM performance versus the S&P 500.
Though ADM has gone on a tremendous run over the past few years, the valuation is not unreasonable. ADM has a P/E ratio of 12.5, well below the S&P 500.
3. Bunge Ltd (BG - Free Report) produces grains, fertilizers, and oil seeds. Though the stock is a member of the strong agriculture group and is a top-ranked Zacks stock, it is not as attractive as ADM and CALM because:
· EPS last quarter was -7%, well below its counterparts.
· Relative weakness: While CALM and ADM trend above their 50-day moving averages and are near highs, BG is stuck in a choppy zone below its 200-day moving average.
Image Source: Zacks Investment Research
Pictured: Though BG is highly ranked, shares have lagged its peers.
Conclusion: Because of their earnings growth, reasonable valuation, and strong forward expectations, Cal-Maine Foods and Archer Daniels Midland are the two leaders in the ag group. While Bunge also has strong expectations, it does not compare favorably to its industry group peers.
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Ag Industry: 3 Top-Ranked Stocks to Grow your Portfolio
The stock market often moves in cycles, with different industry groups outperforming at different times. Cycles can occur due to various factors, including macroeconomic conditions, psychology, investor sentiment, and geopolitical factors.
For instance, in periods of economic expansion, technology and consumer discretionary may outperform. In the recent post covid bull cycle, software, internet content, and growth-oriented stocks led the way. In a contractionary, slower growth cycle, utilities, consumer staples, and value stocks will achieve higher returns. In the current environment, two Zacks industry groups that have been handily outperforming are the Agriculture – Operations group (ranked 31 out of 248) and the Agriculture – Products group (ranked 61 out of 248).
Image Source: Zacks Investment Research
Pictured: The Ag- Operations Group has been an area of refuge for investors in 2022.
While a strong industry group does not guarantee a stock’s success, it can increase the odds of success – and as investors, that’s all we can ask for. According to Zack’s studies, roughly half of a stock’s price movement can be attributed to the underlying industry group. The top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1. Below, we will cover three agriculture names with a highest possible Zacks Ranking of 1.
1. Cal-Maine (CALM - Free Report) is the number one shell egg producer and distributor. The company produces a mind-blowing 6.8 million eggs per hour and has captured 19% of the shell egg market share. Over the past 12 months, Cal-Maine has drastically outperformed the market and its peers, surprised on earnings in three out of four quarters, and is attempting to break out of a multi-month consolidation area. (Pictured below)
Image Source: Zacks Investment Research
Pictured: CALM is breaking out ahead of its earnings release later this month. The stock has been a super performer this year.
In the last reported quarter, CALM reported revenues that grew 103% year over year and swung to a profit from an EPS perspective. Zacks Consensus Estimates show a continued growth trajectory into 2023 as CALM gains traction in the space from top clients such as Costco Wholesale (COST - Free Report) , Walmart (WMT - Free Report) , and Kroger (KR - Free Report) .
Image Source: Zacks Investment Research
Pictured: Zacks Consensus Estimates suggest continued momentum for CALM.
Cal-Maine’s impressive client list and industry position has made a high-growth company and an efficient one. CALM boasts a return on equity of 25%. Despite the impressive growth trajectory, the stock can also be viewed as a potential value play. The stock holds a forward P/E of just 11.43, which compares favorably to the S&P 500’s P/E of 16.99. Earnings are set to be released on December 28th.
2. Archer Daniels Midland (ADM - Free Report) is one of the leading producers of oilseeds, corn, wheat, cocoa, and other food products and ingredients. Like Cal-Maine, Archer Daniels Midland holds the best possible Zacks Ranking of 1. In the most recent quarter, ADM saw EPS rise by 92% on revenue growth of 21%. What’s driving the growth? Low supply. Brazil’s poor growing season and the ongoing war in Ukraine have been a catalyst for ADM. Though both countries are seeing disruptions due to different reasons, both are major agricultural contributors to the global economy. ADM has been filling the void.
Image Source: Zacks Investment Research
Pictured: ADM performance versus the S&P 500.
Though ADM has gone on a tremendous run over the past few years, the valuation is not unreasonable. ADM has a P/E ratio of 12.5, well below the S&P 500.
3. Bunge Ltd (BG - Free Report) produces grains, fertilizers, and oil seeds. Though the stock is a member of the strong agriculture group and is a top-ranked Zacks stock, it is not as attractive as ADM and CALM because:
· EPS last quarter was -7%, well below its counterparts.
· Relative weakness: While CALM and ADM trend above their 50-day moving averages and are near highs, BG is stuck in a choppy zone below its 200-day moving average.
Image Source: Zacks Investment Research
Pictured: Though BG is highly ranked, shares have lagged its peers.
Conclusion: Because of their earnings growth, reasonable valuation, and strong forward expectations, Cal-Maine Foods and Archer Daniels Midland are the two leaders in the ag group. While Bunge also has strong expectations, it does not compare favorably to its industry group peers.