3 Ag Stocks to Buy Instead of John Deere

Stocks to buy

Most investors would say Deere (NYSE:DE) comes to mind when thinking of agriculture stocks. It’s hard not to think of its green combines and tractors plowing through farmers’ fields across America.

You can’t fault the stock’s performance over the past five years, up 162%, nearly 3x better than the S&P 500. If we’re talking about the best ag stocks, it’s always at the front of the conversation.

However, I saw something recently that sparked my interest in its competitors and the realization that there were other ag stocks out there to lean into.

Earlier in October, Barron’s contributor Al Root, a writer I tend to follow, was discussing the merger of AGCO (NYSE:AGCO) and Trimble’s (NASDAQ:TRMB) precision-agriculture businesses into a joint venture that will allow AGCO to better compete with John Deere.

I’m familiar with Trimble because of its Construction One software for the construction industry. I know AGCO because it owns Canada’s iconic combine brand, Massey Ferguson.

So, as ag stocks go, AGCO is a genuine alternative to Deere, with two others making my trio.

AGCO (AGCO)

Source: Pavel Kapysh/ShutterStock.com

As I said in the intro, AGCO owns Massey Ferguson. It acquired the Canadian company for $328 million in cash and stock in 1994. At the time of the purchase, the combined companies had annual revenue of $1.5 billion.

As for AGCO, it got its start in 1990 when Robert Ratliff and other managers acquired Deutz-Allis Corp. in a management buyout. The company only had $200 million in revenue at the time. Ratliff would make 21 more acquisitions, including Massey Ferguson, before retiring as CEO in 2006.

In 2022, AGCO generated revenue of $12.7 billion, nearly 14% higher than in 2021, while its operating income increased by 26% to $1.27 billion. In the first six months of 2023, its sales increased by 27% to $7.2 billion, with growth in every region except Asia. Operating profits were up 89% to $884 million.

In 2023, it expects to grow revenues by about $2 billion, or 16%, with adjusted earnings per share of $15.25.

Currently trading at less than 8x earnings — Deere trades at 13x forward earnings — AGCO is the value play here.

Lindsay (LNN)

Lindsay (NYSE:LNN) stock has gotten hammered in 2023. The Nebraska-based company’s shareholders have seen their holdings’ value fall by 32% this year. Its shares are now within a dollar of its 52-week low.

The company manufactures center pivot irrigation systems, other farm and construction machinery and road safety and railroad infrastructure products.

Most recently, it announced on July 31 that it acquired FieldWise, LLC, a provider of subscription-based precision irrigation solutions. The solutions allow farmers and ranchers to monitor and control their critical assets remotely. FieldWise’s products enable farmers to be more productive.

Looking at FieldWise’s website, I bet Lindsay is interested in the company’s Nano telemetry technology, which provides customers with exceptional versatility at a reasonable cost.

If you look at Lindsay’s operating margins in the latest quarter, they’re outstanding. The irrigation segment, which accounts for 87% of its revenue, had an operating margin of 21.6%, 60 basis points higher than a year ago. The operating margin for its infrastructure segment in the third quarter was 16.2%, 140 basis points higher.

So, despite a 23% decrease in revenue and operating income on a consolidated basis, it still managed to generate a reasonable profit.

The problem is farmers are nervous about the economy, forcing them to cut back demand. Lindsay can’t control how farmers react to the economy, but it can control costs; it’s been successful on that front.

With infrastructure spending expected to increase in 2024, look for that part of the business to grow in importance.

By most financial metrics, LNN stock hasn’t been this cheap since 2015-2016.

Exor (EXXRF)

Source: GaudiLab / Shutterstock

Exor (OTCMKTS:EXXRF) is the Agnelli family’s holding company. Bear with me while I provide a little history lesson.

Giovanni Agnelli founded Fabbrica Italiana Automobili Torino (FIAT) in 1899. In 1927, Agnelli created Istituto Finanziario Industriale (IFI), a holding company for his shareholdings in Fiat and other sectors. In 1964, IFI started IFI International (IFINT) to hold the family’s investments outside Italy. In 1991, IFINT acquired French conglomerate Exor S.A. Finally, IFINT merged with Exor S.A. to form the current Exor holding company.

As Sean Connery said in “The Untouchables,” “Here endeth the lesson.”

Exor’s holdings include 22.9% of Ferrari (NYSE:RACE), 14.2% of Stellantis (NYSE:STLA), and most importantly, as it relates to agriculture, 26.9% of CNH Industrial (NYSE:CNHI).

CNH Industrial was created in September 2013. It was the new name of the merged entity of CNH Global and Fiat Industrial. CNH was created in 1999 by merging Wisconsin-based Case and Europe’s New Holland.

In the second quarter, CNH reported an 8% increase in revenue to $6.57 billion. Its adjusted net income was $711 million, 22% higher than in Q2 2022.

Its Agriculture segment accounted for 74% of its revenue. Its Construction segment went over $1 billion in revenue in the quarter for the first time. It accounts for 16% of the company’s overall revenue, and its Financial segment accounts for the remaining 10%.

As the agriculture business goes, so goes CNH.

Business is good, but like the other ag stocks, investors aren’t so confident about the future. So, while CNH stock is down 28% year-to-date, Exor stock is up more than 20%.

Exor’s diversification is an excellent way to play agriculture.

On the date of publication, Will Ashworth did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

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