Amid the chaos caused by the Covid-19 pandemic, the agriculture sector has gotten a boost in recent weeks and could continue to rise heading into Easter weekend.
While consumers were stocking up on basic food staples like eggs, milk, chicken and flour, leading to shortages, Congress and the Trump administration were busy working on a $2 trillion stimulus bill that included up to $23.5 billion in assistance for farmers.
Although farmers and ranchers are intended to be the direct benefactors of the stimulus bill, several big farm products companies have seen their stocks gain since it was passed by Congress and then signed by President Trump on March 27.
These companies, according to the All-in-One Screener, a Premium GuruFocus feature, as of April 10 included Archer-Daniels-Midland Co. (ADM, Financial), Bunge Ltd. (BG, Financial), Cal-Maine Foods Inc. (CALM, Financial) and Tyson Foods Inc. (TSN, Financial).
According to the GuruFocus Industry Overview page, Tyson is the tenth-largest player in the consumer packaged goods sector, which is led by Procter & Gamble Co. (PG, Financial), Mondelez International Inc. (MDLZ, Financial), Colgate-Palmolive Co. (CL, Financial) and The Estee Lauder Companies Inc. (EL, Financial).
Archer-Daniels-Midland
The Chicago-based company, which is a major processor of oilseeds, corn, wheat and other agricultural goods, has a $20.94 billion market cap; its shares closed at $37.58 on Thursday with a price-earnings ratio of 15.34, a price-book ratio of 1.09 and a price-sales ratio of 0.33.
The Peter Lynch chart shows the stock is trading near its fair value. The GuruFocus valuation rank of 5 out of 10 supports this assessment.
GuruFocus rated Archer-Daniels-Midland’s financial strength 5 out of 10. As a result of issuing approximately $1.7 billion in new long-term debt over the past three years, the company has low interest coverage. In addition, the Altman Z-Score of 2.94 indicates it is under some financial pressure since the weighted average cost of capital exceeds the return on invested capital, suggesting it is not capital efficient.
The company’s profitability scored a 6 out of 10 rating despite having a declining operating margin. While its returns outperform at least half of its competitors, Archer-Daniels-Midland is also being weighed down by a low Piotroski F-Score of 3, which indicates operations are in poor shape. Its business predictability rank of one out of five stars is also on watch. According to GuruFocus, companies with this rank typically return an average of 1.1% per annum over a 10-year period.
Of the gurus invested in Archer-Daniels-Midland, Diamond Hill Capital (Trades, Portfolio) has the largest stake with 0.74% of outstanding shares. Other top guru shareholders are Tom Gayner (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), George Soros (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), NWQ Managers (Trades, Portfolio), Louis Moore Bacon (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Philippe Laffont (Trades, Portfolio) and Barrow, Hanley, Mewhinney & Strauss.
Bunge
The agribusiness and food products company, which is headquartered in White Plains, New York, is an international soybean exporter and is also involved in grain trading and fertilizer production. It has a market cap of $5.8 billion; its shares closed at $40.83 on Thursday with a forward price-earnings ratio of 11.86, a price-book ratio of 1.11 and a price-sales ratio of 0.14.
According to the median price-sales chart, the stock is undervalued. The GuruFocus valuation rank of 7 out of 10 also leans toward undervaluation.
Bunge’s financial strength and profitability were both rated 5 out of 10 by GuruFocus. Since the company has issued around $604 million in new long-term debt over the past three years, it has a low cash-debt ratio of 0.12. The Altman Z-Score of 3.1, however, suggests it is in good financial standing.
The company is also being weighed down by negative margins and returns that underperform a majority of industry peers, as well as a low Piotroski F-Score of 2. As a result of recording an operating loss over the past three years and a decline in revenue over the past five years, the one-star business predictability rank is on watch.
With a 1.21% stake, the T Rowe Price Equity Income Fund (Trades, Portfolio) is Bunge’s largest guru shareholder. Other top investors are Bacon, Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Pioneer, Hotchkis & Wiley, Gabelli, Michael Price (Trades, Portfolio), Steven Cohen (Trades, Portfolio) and Greenblatt.
Cal-Maine Foods
The Jackson, Mississippi-based company is the largest producer of eggs, which are especially important this coming weekend as children will need to dye them for the Easter Bunny to hide. It has a $1.93 billion market cap; its shares closed at $39.62 on Thursday with a price-book ratio of 2.03 and a price-sales ratio of 1.63.
Based on the median price-sales chart, the stock appears to be overvalued. The GuruFocus valuation rating of 2 out of 10 also supports this assessment as the price-sales ratio is near a two-year high.
GuruFocus rated Cal-Maine’s financial strength 8 out of 10 on the back of comfortable interest coverage and a robust Altman Z-Score of 9.19.
The company’s profitability scored a 6 out of 10 rating even though it has negative margins and returns that underperform a majority of competitors. Cal-Maine also has a low Piotroski F-Score of 1 and a one-star business predictability rank that is on watch as a result of a decline in revenue per share over the past five years.
Diamond Hill is the company’s largest guru shareholder with a 4.19% stake. Other top guru investors are Simons’ firm, Cohen, Chuck Royce (Trades, Portfolio), Charles Brandes (Trades, Portfolio) and Pioneer.
Tyson Foods
As one of the world’s largest processors and marketers of chicken, beef and pork products, Tyson stands to benefit from celebratory feasts on Easter Sunday. Yielding a market cap of $22.25 billion, shares of the Springdale, Arkansas-based company closed at $60.94 on Thursday with a price-earnings ratio of 11, a price-book ratio of 1.54 and a price-sales ratio of 0.52.
The Peter Lynch chart suggests the stock is undervalued. The GuruFocus valuation rating of 4 out of 10, however, leans more toward overvaluation.
GuruFocus rated Tyson’s financial strength 5 out of 10. Although the company has issued approximately $4.4 billion in new long-term debt over the past three years, it is at a manageable level as a result of adequate interest coverage. The Altman Z-Score of 2.9, however, indicates it is under some minor financial pressure since its assets are building up at a faster rate than revenue is growing.
The company’s profitability and growth fared a bit better, scoring a 7 out of 10 rating. In addition to operating margin expansion, Tyson is supported by returns that outperform a majority of industry peers, a moderate Piotroski F-Score of 4, which implies conditions are stable, and a one-star business predictability rank.
The T. Rowe Price Equity Income Fund has a 1.18% stake, making it Tyson’s largest guru shareholder. Simons’ firm, PRIMECAP Management (Trades, Portfolio), Cohen, Pioneer, Gayner, Bacon, Bernard Horn (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Laffont, George Soros (Trades, Portfolio), Greenblatt, Ken Fisher (Trades, Portfolio), Lee Ainslie (Trades, Portfolio) and Jones also have positions in the stock.
Disclosure: No positions.
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