The agriculture segment isn’t the brightest at the moment because it has been severely hit by the pandemic. However, there are some segments and some stocks that still hold promise, as you can see below.

The Scotts MiracleGro Company (SMG - Free Report)

The Scotts Miracle-Gro Company is a leading producer and marketer of branded garden and consumer lawn products, including landscaping and hydroponics. Its products are sold to home centers, mass merchandisers, warehouse clubs, large hardware chains, independent hardware stores, nurseries, garden centers, e-commerce platforms, food and drug stores, and indoor gardening and hydroponic distributors and retailers through a direct sales force and network of brokers and distributors.

With more people staying home on account of the pandemic, there was a surge in the company’s business, across product lines and even stretching beyond the traditional gardening season. The company’s consumer research revealed that 28% of all homeowners spent time on lawn and garden activities while 8 million new households joined in for the first time. That’s tremendous momentum. While some of these customers may go back to old ways if things normalize next year, being home has its own allure and efforts are in place up to retain them. And if things aren’t back to normal in the first half of next year (which is quite likely), growth will be quite comfortable.  

Another trend that is developing into an attractive growth channel is edible gardening. People in this category tend to be more committed and enthusiastic. So the fact that many of the new customers are focused on this category seems to be a bonus.  

Other details-

Zacks Rank #1 (Strong Buy)

Industry: Fertilizers (top 10%)

Earnings came in 13.4% higher than the Zacks Consensus Estimate in the June quarter. So the earnings estimate for 2020 jumped $1.03 (17.8%) to $6.82, a 52.6% increase from 2019. And it’s on revenue that’s expected to grow 27.9%.

2021 revenue and earnings are currently expected to grow 0.6% and 6.9%, respectively.

The Mosaic Company (MOS - Free Report)

The Mosaic Company is a leading producer and marketer of concentrated phosphate and potash for the global agriculture industry. It was formed through the combination of the fertilizer businesses of agribusiness giant Cargill Incorporated and IMC Global Inc. Mosaic is the biggest integrated phosphate producer globally and is also among the four largest potash producers in the world. It accounts for around 13% of global annual phosphate production and around 11% of global annual potash production and sells across 40 countries.

Mosaic mines phosphate rock from around 200,000 acres of company-owned land in Central Florida. It also mines potash from five mines in North America, mainly in Saskatchewan. It processes rock into finished phosphate products at facilities in Florida, Louisiana and Brazil. Its products are processed into crop nutrients, and then shipped thorough rail, barge and ocean-going vessel to customers in major agricultural centers globally.

The last two years saw disruptions related to bad weather than significantly impacted fertilizer delivery and application, which led to pent-up demand in 2020. In the meantime, the inventory glut led to low prices. So 2020 is shaping up to be a year of strong demand and companies with scope for strong asset utilization and other cost efficiencies are likely to gain.

MOS stands to gain long-term on the operational efficiency side. The company has built the infrastructure from which it will reap advantages spanning several years. Efforts to centralize mining operations, streamline processes and automate will continue and resultant benefits will flow in as well.

Other details-

Zacks Rank #2 (Buy)

Industry: Fertilizers (top 10%)

June quarter earnings of 11 cents were notably better than the estimated loss of 4 cents.

So 2020 estimated earnings jumped from 6 cents to 28 cents (366.7%), which is 47.4% higher than 2019 despite the estimated 6.9% revenue decline.

In 2021, earnings are expected to come in at 94 cents, a 40-cent (74.1%) increase in the last 30 days and an increase of 235.7% from 2020. Revenue, while growing 3.2% will remain below 2019 levels.

AGCO Corporation (AGCO - Free Report)

AGCO Corporation is a leading manufacturer and distributor of agricultural equipment and related replacement parts. The company offers a full product line of farm equipment through a wide network of dealers and distributors across 140 countries.Its full range of agricultural equipment includes tractors (57% of 2019 sales), combines (3%), application equipment including self-propelled sprayers (3%), hay tools and forage equipment, implements and other equipment (12%), and grain storage and protein production systems (10%).

The single-biggest factor impacting equipment purchases during the pandemic was weakness in grain prices because of weaker consumption for food, fuel and livestock feed. Persistently dry weather in Western Europe that impacted the wheat crop there remains a negative.

The reopening has already helped stabilize things in Europe. South America, where a good first crop in Brazil and fears of a possible currency devaluation in Argentina have been supportive, is also limping back. North America remains cautious about spending although the government aid package has helped. The aged fleet in North America and increased focus on precision farming (where AGCO is seeing initial success) are longer-term drivers.

Precision farming, or site-specific crop management (SSCM) uses technologies like GPS, GIS and remote sensors to collect field information and develop superior strategies for planting, fertilizing and harvesting. Climate change, increasing population, shortage of skilled labor, rising labor cost and increasing farm mechanization in some developing countries are the biggest drivers. MarketsandMarkets estimates that this segment will grow from $7 billion in 2020 to 12.8 billion in 2025 at a CAGR of 12.8%.

Other details-

Zacks Rank #1

Industry: Manufacturing - Farm Equipment (top 14%)

June quarter earnings of $1.11 were significantly higher than the estimated 7 cents.

The 2020 Zacks Consensus Estimate jumped $1.03 (42.4%) in the last 30 days, although it’s still below the 2019 earnings.

The 2021 earnings estimate, after jumping 54 cents (13.4%) in the last 30 days will surpass 2019 levels on revenue that will still be short despite growing 5.8%.