Food is an easy bet, investment-wise, since the planet’s population grows at a much faster pace than people seem to be able to plant and harvest. And to harvest food, farmers need machinery. That’s where companies like AGCO Corp (AGCO) come in.
Even those who may not be in touch with agriculture probably have come across AGCO’s global brands: Massey Ferguson, Fendt, Challenger, and Valtra. These machines are how farmers produce more food with less land. They’re expensive investments, but with commodity prices soaring, farmers have the money to invest in new equipment, good news for AGCO and its competitors, such as Deere & Co. (DE), Case IH/CNH Global (CNH), and Kubota (KUB).
The company is investing in its North American production sites as well as at its R&D center in Germany in order to ensure customer satisfaction and loyalty, something which it hopes will help it win new farmer investment dollars against stiff competition.
Net sales for the first quarter were up by more than a third year-on-year, as markets in Western Europe picked up and the Americas remained steady. AGCO has committed to growing market share in India and China as well, seeking out new wealth among farmers ready to invest in better machinery for more food production.
Recently Morgan Stanley upgraded agricultural fertilizer stocks such as CF Industries (CF) while Citi upgraded the competition, including Potash (POT), Mosaic (MOS), and Agrium (AGU), all based on good future prospects for agriculture and anything related to food in the near term. AGCO and other tractor makers should follow that trend straight through the autumn and likely well into next year, after which corn prices and the like might ease.
Maybe, if other major grain producers have a good crop. The U.S. crop is likely to be dismal on heavy rains, flooding, and late planting.
UBS has upgrading AGCO to buy from its previous neutral rating with an eye on $60. Recent trading has been in the high $40s, giving ample room for upside.
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