Thanks to the inevitability of eating, the agriculture industry continues to thrive. Everyone one has to eat, and since the population is still growing, that means more mouths to feed every year. This also means opportunities for investment in companies like Archer-Daniels-Midland Company (NYSE:ADM), Bunge Limited (NYSE:BG), Corn Products International (CPO), Smithfield Foods Inc (NYSE:SFD) and Tyson Foods (NYSE:TSN). Let's take a look at these companies who not only grow food, but also grow profits for savvy investors.
While demand still exists in this business sector, there are some great pressures affecting the success of its companies. Archer-Daniels-Midland is involved in procurement, transportation, storage, processing, and merchandising of agricultural commodities. The $20 billion company has a current share price of $30.50 (52-week range of $23.69 - $38.02), a one-year target estimate of $33.63 and pays a dividend of $0.70 for a yield of 2.3%.
Analysts are warning that 2012 will be a tough year for the industry. Archer-Daniels-Midland struggled last year, posting an 89% decline in quarterly earnings while its revenues grew by 11.4%. The company's stock price dropped by more than 15% in 2011, and its 200-day moving average is still on a downward trend. In addition, the company is closing a North Dakota ethanol plant as it attempts to optimize its operations. This adds up to a lot of bad news for the company, and I am recommending that investors not take new positions in the company until things start to improve.
New York-based Bunge Limited has nearly 200 years in the agricultural sector. The company focuses primarily on the purchase, storage, transport, processing, and sale of soybeans, canola, sunflower seed, corn and wheat. The company's stock is trading at $63.50 per share (52-week range of $) and recently made a bullish climb above its 200-day moving average, marking the first time it had done so since July, 2011. Bunge has a one-year target estimate of $73.25, and the company issues an annual dividend of $1.00, which is good for a yield of 1.7%. The company has recently announced its acquisition of the edible oils and fats business of Amrit Banaspati Co Ltd.
This growth by expansion is viewed as another positive step for Bunge. The company suffered a 34% decline in quarterly earnings last year, but its revenue soared by 33%. The company does not experience high levels of volatility (its beta is 0.66) and its 0.83 price to book ration indicates that the stock is undervalued. With a 15% gain in share price predicted by its one-year target, investors can look forward to a better 2012 for the company. Bunge has a very good share price target, and its strong finish to 2011 helps to make it a solid buy for 2012.
Corn Products International
Experts are predicting that more corn will be planted in 2012 due to its continued profitability. For a company named Corn Products International, this is definitely good news. The company produces grain for North America, South America, Asia, Africa, and Europe, and it is looking to expand on last year's success. Corn products enjoyed a quarter revenue increase of 59.7%, while its earnings soared an impressive 137.7%. The stock trades around $57 (near the top of its 52-week range of $36.65 - $59.50), and it has a one-year target estimated at nearly $64 per share. In addition to this potential double-digit gain, the company pays a dividend of $0.80, returning a yield of 1.4%.
Good news has already started for Corn Products, as the company announced expected earnings per share of $5.25. Although its price to book ratio is somewhat high at 2.10, the company's debt to equity ratio of 89 is low, and its payout ratio is a mere 13%, a number which looks to be quite sustainable. Coming off a great 2011, Corn Products International once again is on my radar as a solid buy.
Smithfield Foods Inc
Virginia-based Smithfield Foods is well-known as a producer of fresh and packaged meat products. The company has a market cap of $3.66 billion, and trades around $23 per share, near the top of its 52-week range of $17.79 - $25.12. The stock has a one-year target estimate of $28, but the company does not pay a dividend.
Although very little stands out about Smithfield's performance right now, I still have some short-term interest in it as an investment. Credit Suisse is rating the company to outperform. The stock has a very reasonable price to book ratio of 1.06 and there are recent reports of company insiders buying as many as 300,000 shares on a price pullback. With a low debt to equity ratio of 62, quarterly revenue growth of 10.5% and its projected target of a 20% increase, I would recommend looking at Smithfield Foods Inc as a very profitably short-term investment.
Tyson Foods Inc
Tyson Foods is located in Springdale, AR, and the company is one of the best-known names in consumer goods. The $7 billion company specializes in the production and marketing of chicken, beef, pork, prepared foods. It currently has a stock price of around $19 per share, a 52-week range of $15.60 - $21.06 and a one-year target estimate of just over $23. The company is a dividend payer, offering $0.16 annually, for a yield of 0.8%.
Although it recently crossed over its 200-day moving average, I have some concerns about the long-term upside of this stock. While it is reasonably valued by a price to book ratio of 1.22, the stock has only grown by 3.6% over the past year. The company has a solid debt to equity ratio of 38, and its quarterly revenue climbed by 9.4% last year, yet its earnings fell by almost 48%. With lethargic results to date and the looming E. coli testing set to start in June, I rate Tyson Foods a hold at the current time.
Eating up Profits in Consumer Goods
While there will always be ample demand in the sector, investors are seeing pressure against their holdings in the food industry. Companies like Archer-Daniels-Midland Company and Tyson Foods Inc have experienced significant earnings declines, and I would avoid them at the present. Bunge Limited, Corn Products International and Smithfield Foods Inc are all performing better. Corn Products appears ready for some short-term gains, while I see both Bunge and Smithfield as solid long-term holdings.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.