We recently compiled a list of the 8 Best Small Cap Agriculture Stocks to Buy. In this article, we are going to take a look at where Limoneira Co (NASDAQ:LMNR) stands against the other small cap agriculture stocks.
Agricultural Growth & the Role of Technology
The agriculture market consists of various sectors, including animal production, crop production, and rural activities. Agricultural products are categorized as organic or conventional and distributed through channels like supermarkets, hypermarkets, convenience stores, e-commerce, and other retail outlets. According to a report by Research and Markets, the agriculture market was valued at $14.35 trillion in 2024 and is projected to grow to $19.28 trillion by 2028, at a CAGR of 7.7%. This growth can be attributed to several factors, including population growth, the globalization of trade, the use of crop products, and supportive government policies such as rural development programs. The OECD and FAO predict a 13% growth in cereal production by 2027 as the global population is projected to reach 10 billion by 2050.
Adoption of sustainable agriculture practices, advancements in crop genetic engineering, increased focus on organic farming, vertical farming, and the implementation of water management solutions are on the rise. AI, digital marketplaces for agricultural products, autonomous farming equipment, and farm management software products are also contributing to the market. Consumer preferences are shifting towards healthier and more diverse diets with nutrient-rich foods. Companies are also focusing on digital farming platforms like Climate FieldView, which provide farmers with data-driven insights.
In March 2021, The Climate Corporation introduced Climate FieldView in South Africa. The platform helps farmers analyze detailed farm data, offering compatibility across various equipment types and connectivity to multiple farm management software systems and helps farmers to make informed decisions and improve operations. Drones and GPS tools are the most commonly used AI technologies in agriculture. AI applications will help farmers identify pests on crops and determine if they pose a threat. Technologies like these are becoming essential for the agricultural sector and assist farmers in identifying areas of their crops that require more or less attention.
Digital agriculture is transforming farming through the adoption of advanced technologies such as IoT sensors, drones, and robotic harvesters, which facilitate data-driven decisions, optimized resource use, and enhanced productivity. Regenerative agriculture, which emphasizes sustainable practices, aims to improve soil health, foster biodiversity, and minimize environmental impact. Precision agriculture leverages GPS, sensors, and data analytics to meticulously manage crops, allowing for targeted application of water, fertilizers, and pesticides, thereby increasing efficiency and reducing environmental footprints.
The use of agricultural robotics, including autonomous tractors and drones is addressing labor shortages while boosting efficiency, precision, and safety. AI further revolutionizes the sector by providing virtual models for testing and offering predictive insights to optimize processes. Sustainable practices, supported by automated irrigation systems and precision agriculture, contribute to eco-friendly farming and better yields. Additionally, RFID and blockchain technologies enhance food traceability and safety by enabling real-time tracking from farm to table, thereby reinforcing consumer trust in food quality and integrity. AI is assisting farmers and supply chains in managing climate-related risks.
A significant challenge the industry is facing is a labor shortage, which threatens the profitability and productivity of farms. This shortage is caused due to an aging farmer population and younger generations are less likely to take over family-run farms, opting instead for less labor-intensive and better-paying jobs. The situation is compounded by the decline in immigrant labor, which has traditionally filled many agricultural roles. However, in the coming years, there will be other innovative tools, including self-driving tractors and combines to address these concerns.
In a CNBC interview on September 20, 2023, Jonathon Quigley, Founding Partner of Cultiv8 Funds Management, emphasized the firm’s optimistic outlook on the agriculture and food technology sectors, with a particular focus on companies addressing long-term structural challenges, especially in food security. Cultiv8 prioritizes investments that tackle critical issues such as environmental degradation and climate change. The firm concentrates on areas with sustained growth potential, including automation, robotics, climate adaptability, and emissions reduction. Cultiv8 is optimistic about innovative companies that are making significant advancements in areas such as robotic pollination, methane emission reduction, antibiotic alternatives, and sustainable water treatment.
The agriculture sector is transforming rapidly to meet the rising food demand and investors see significant potential in agriculture stocks. As the industry adapts to modern technologies with advancements in AI, digital platforms, and sustainable farming practices, the agriculture market is poised for continuous growth.
Our Methodology
For this article, we used the Finviz screener to screen for small-cap agriculture companies. We also checked agriculture ETFs to make sure we did not miss any stocks. We selected 8 small-cap agriculture stocks that were the most widely held by institutional investors. The list is sorted in ascending order of hedge fund sentiment, which was taken from our database of 920 elite hedge funds as of Q1 of 2024.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A team of packing house workers packaging specialty citrus for customer orders.
Limoneira Co (NASDAQ:LMNR)
Number of Hedge Fund Holders: 4
Market Capitalization as of August 9: $369.58 Million
Limoneira Co (NASDAQ:LMNR) is a 131-year-old international agribusiness that produces lemons, avocados, and other crops. The company has over 11,000 acres of agricultural land and over 21,000 acre-feet of water rights in Arizona, California, Chile, and Argentina. Limoneira Co (NASDAQ:LMNR) also deals in real estate development and capital investment activities.
On June 6, Limoneira Co (NASDAQ:LMNR) reported that its agribusiness revenue increased to $46.7 million from $43.3 million and revenue from other operations also increased 8% to $1.4 million, compared to the same quarter in the previous year. However, results were impacted by increased rainfall in California that delayed the picking of lemons and caused fresh utilization in the second quarter to fall to around 70%.
Limoneira Co (NASDAQ:LMNR) anticipates an additional 700 acres of non-bearing lemons will become fully productive over the next four to five years, including 200 acres expected to reach full production by FY24. The company anticipates $131 million from harvest over nine fiscal years. Limoneira Co (NASDAQ:LMNR) also expects to realize $30 million in planned incremental EBITDA growth over the next seven fiscal years, stemming from various areas including completed projects ($4 million), grower partner growth ($4 million), agency growth ($4 million), farm management services growth ($3 million), and avocado expansion ($15 million).
Limoneira Co (NASDAQ:LMNR) presents a compelling investment opportunity. The company’s expansion plans further bolster its potential which will become fully productive over the next four to five years. These factors make Limoneira Co (NASDAQ: LMNR) one of the best small-cap agriculture stocks to buy.
The company is valued at $369.58 million as of August 9. As of the first quarter, the stock is held by 4 hedge funds and the stakes amount to $5.55 million. GAMCO Investors is the largest shareholder in the company with a stake worth $4.13 million as of March 31.
The company is expected to increase its earnings by 100% this year. Limoneira Co (NASDAQ:LMNR) recently exited unprofitable farming operations and is undergoing a strategic shift towards avocado production. The company also entered a water-flowing program in Arizona. While these actions are intended to improve financial position in the long term, they have short-term impacts on earnings. Analysts have a consensus Buy rating on the stock and their 1-year median price target of $24 implies an upside of 15.6% from current levels.
Overall LMNR ranks 7th on our list of the best small cap agriculture stocks. While we acknowledge the potential of LMNR as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than LMNR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.