We recently compiled a list of the 10 Worst Farmland and Agriculture Stocks to Buy According to Short Sellers. In this article, we are going to take a look at where CF Industries Holdings, Inc. (NYSE:CF) stands against the other farmland and agriculture stocks.
The $5 trillion food and agriculture sector has experienced significant changes over the past six decades. Technological advances, resource allocation, and production processes drove these changes. The global agricultural output has been impacted by the Green Revolution of the 1960s as well as the advancements in modern biotechnology. According to the US Department of Agriculture (USDA), the production of the agriculture sector quadrupled between 1961 and 2020. This jump is largely due to technological advancements and increased land use. Therefore, innovations over the years have enabled the sector to meet the ever-increasing demand. However, this industry is still facing challenges. Productivity growth has stunted over the past decade, which creates concerns regarding the sector’s ability to meet the world’s increasing demand.
Furthermore, the global agricultural sector has changed dramatically over the years, owing to the increasing involvement of the Global South (Africa, Asia, and Latin America) in overall production. The region contributed an astounding 73% to the global output by 2020. According to McKinsey & Company, the Global South’s contribution to overall production is expected to grow as emerging markets look to modernize their agricultural sectors. Such a change has been majorly driven by technological changes in crop science, irrigation systems, and machinery, enabling the sector to gain larger yields given the same amount of land. Moreover, easing inflation in the U.S. toward the end of 2024 resulted in reduced input costs, especially energy costs, meaning improved margins for the sector.
However, the Total Factor Productivity (TFP) – an important metric for assessing resource management efficiency in agriculture – has faced a slump in recent years. The global TFP has dropped to 0.9% in the last decade, compared to 1.6% in the early 2000s. With the global food demand expected to increase by 60% by 2050, a slowdown in productivity growth comes as a major concern. This stagnation could lead to a rise in food prices, an expansion of agricultural land, and elevated pressure on ecosystems that are already under pressure due to climate change. Around such skepticism, the Farm Products sector has experienced negative returns on a YTD and 6-month basis, while S&P reported 5.80% return on a 6-month basis.
To mitigate these concerns, the agricultural sector needs to counter the global demand with sustainability. Accordingly, McKinsey highlights the need for investment in innovative technologies like precision agriculture, artificial intelligence, and satellite-based monitoring systems. Such technologies can add to efficiency as well as a reduction in the industry’s environmental footprint. For instance, farmers are now able to make informed decisions through AI-driven data analytics, leading to an improvement in yield forecasting and optimization of input usage. It is expected that investment in relevant technologies could lead to an increase of over 25% in the agricultural output over the next 10 years, according to McKinsey.
Methodology
For this article, we shortlisted a list of stocks within the agricultural inputs and farm products sectors using the Finviz screeners. We also considered our previous articles on the industry to ensure relevant inclusions in our list. Using the extensive list, we selected companies that demonstrated strong market capitalization.
Next, we looked into the number of hedge funds invested in these companies, which is considered a dependable indicator of firm performance. Moreover, we noted down the short percentage of float for all the companies, which is a testament to the negative sentiment or short interest in the stock. Finally, the shortlisted stocks were ranked in ascending order of their short percentage of float.
Why are we interested in the stocks that hedge funds pile into? 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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A close-up of a farmer standing with his tractor in a lush field of crops.
CF Industries Holdings, Inc. (NYSE:CF)
Number of Hedge Funds: 45
Short % of Float: 4.90%
CF Industries Holdings, Inc. (NYSE:CF) is one of the largest suppliers of nitrogen-based fertilizers, which play a crucial role in improving soil fertility and increasing crop yields. The company produces ammonia, granular urea, and urea ammonium nitrate (UAN), which are extensively used by farmers and agricultural businesses to increase their production.
CF Industries Holdings, Inc. (NYSE:CF) reported an adjusted EBITDA of $562 million for Q4 ended December 31, 2024, and $2.3 billion for the full year. These positives, supplemented by steady fertilizer demand, helped the company perform strongly during the quarter. Similarly, net earnings for 2024 were reported to be $1.2 billion, emanating from operational efficiency. As a result of making the profits, the company was able to return $1.9 billion to its shareholders through dividends and share repurchases, which is the highest by the company in over a decade.
Furthermore, CF Industries Holdings, Inc. (NYSE:CF) was able to utilize its full capacity, producing 2.6 million tons of gross ammonia in the fourth quarter and 9.8 million tons for the full year. The company has forecasted production of 10 million tons of ammonia in 2025, highlighting its crucial role as a supplier for the agricultural sector. With the company’s Donaldsonville facility set to start its operations in 2025, CF Industries is continuing to move forward with its carbon capture and sequestration (CCS) projects.
Under the rising global corn demand and limited growth in supply, the nitrogen fertilizer market looks favorable. CF Industries Holdings, Inc. (NYSE:CF) expects strong nitrogen application rates as the U.S. corn acreage is expected to increase in 2025, adding to fertilizer demand. Moreover, major global urea producers facing supply-related issues, such as India’s ongoing challenges in securing tender volumes, further cemented pricing support for nitrogen-based fertilizers.
However, the company still faces issues related to nitrogen price fluctuations and potential changes in regulations. The company looks to counter these concerns and ensure long-term success through its strong production network, ongoing investment efforts in low-carbon ammonia, and its focus on catering to agricultural demand. Despite its ongoing efforts, pessimism remains among the short sellers, which makes CF Industries one of the Worst Farmland and Agriculture Stocks to Buy According to Short Sellers.
Overall CF ranks 7th on our list of the worst farmland and agriculture stocks to buy according to short sellers. While we acknowledge the potential of CF as an investment, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CF 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.