The effects of the U.S.-China trade war are starting to take a toll, hitting American farmers. According to CNBC, soybean farmers are beginning to feel the pressure as their inventories pile up after losing contracts from China, impacting their storage, shipping and freight operations.
As a result, some good investment opportunities may be found among agriculture-related companies that are trading below Peter Lynch value.
Lynch, a renowned value investor, developed this method in order to simplify his stock-picking process. With the belief that good, stable companies eventually trade at 15 times their annual earnings, he compared the stock price over time to a company’s earnings. Stocks that trade below a price-earnings ratio of 15 are considered good investments because they are expected to appreciate over time, creating value for shareholders.
According to the GuruFocus All-in-One Screener, agricultural companies currently trading below this level that also have predictable performances are: Cervus Equipment Corp. (TSX:CERV, Financial), FMC Corp. (FMC, Financial) and Imperial Ginseng Products Ltd. (TSXV:IGP, Financial).
Cervus Equipment
The Canadian company, which sells farm and construction equipment, has a market cap of 215.63 million Canadian dollars ($166.4 million); its shares closed at CA$13.72 on Tuesday with a price-earnings ratio of 10.11, a price-book ratio of 0.93 and a price-sales ratio of 0.18.
The Peter Lynch chart shows the stock is trading below its fair value, suggesting it is undervalued.
Cervus’ financial strength and profitability and growth were both rated 6 out of 10 by GuruFocus. While the company has a high Altman Z-Score of 3.49, its interest coverage has been pulled down by a heavy debt load, though it still exceeds Benjamin Graham’s standard of 5.
Additionally, despite having declining margins, the company’s Piotroski F-Score of 5 indicates conditions are stable. It also has a business predictability rank of one out of five stars. According to GuruFocus, companies with this rank typically see their stock prices gain an average of 1.1% per year. The rank is on watch, however, because the company’s revenue per share growth has slowed down over the last 12 months.
No gurus currently hold the stock.
FMC
The Philadelphia-based manufacturer of agricultural inputs has an $11.61 billion market cap; its shares were trading around $86.20 on Wednesday with a price-earnings ratio of 11.84, a price-book ratio of 3.87 and a price-sales ratio of 2.85.
According to the Peter Lynch chart, the stock is overpriced.
GuruFocus rated both FMC’s financial strength and profitability and growth 5 out of 10. As a result of declining revenue per share and mediocre interest coverage, the Altman Z-Score of 2.56 suggests the company is under some financial pressure.
Although the company’s operating margin has been declining for the past several years, it still outperforms 64% of competitors. It also has a Piotroski F-Score of 5 and an one-star business predictability rank.
Among the Gurus invested in FMC, Larry Robbins (Trades, Portfolio) has the largest position with 5.95% of outstanding shares. Jim Simons (Trades, Portfolio)’ Renaissance Technology, Steven Cohen (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Michael Price (Trades, Portfolio), Mario Gabelli (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio) are also shareholders.
Imperial Ginseng Products
Headquartered in Vancouver, the ginseng cultivator has a market cap of CA$10.9 million; its shares closed at CA$1.69 on Tuesday with a price-earnings ratio of 2.94, a price-book ratio of 0.40 and a price-sales ratio of 2.07.
Based on the Peter Lynch chart below, the stock appears to be undervalued.
Imperial Ginseng’s financial strength and profitability and growth were both rated 6 out of 10 by GuruFocus. While the company has low cash-to-debt and debt-to-equity ratios, the Altman Z-Score of 1.77 suggests it is in danger of bankruptcy since its revenue per share is in decline.
Despite having a negative operating margin, the company’s net margin and returns are positive and outperform industry peers. The Piotroski F-Score of 4 indicates business conditions are stable. Imperial Ginseng also has a one-star business predictability rank.
The company currently has no guru investors.
Disclosure: No positions.
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