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 CNH Industrial N.V. (NYSE:CNH) 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).
Aerial view of a sprawling farmland, showing the scale of the company’s agricultural business.
CNH Industrial N.V. (NYSE:CNH)
Number of Hedge Funds: 42
Short % of Float: 6.24%
CNH Industrial N.V. (NYSE:CNH) is one of the top agricultural and construction equipment producers. The company offers a plethora of machinery to farmers, including tractors, combines, and precision agriculture technologies. The company operates well-known brands, New Holland Agriculture and Case IH, enabling it to supply essential tools for modern farming globally.
The company reportedly drove net sales of $4.1 billion through industrial activities for Q4 ended December 31, 2024. This was a decrease of 31% from the previous year, owing to lower industry demand and reductions in dealer inventory. Similarly, net sales for the whole year were reported to be $17.1 billion, which was a decline of 23% as a result of reduced sales of farm equipment. Moreover, the company reported an adjusted net income of $196 million for Q4 and diluted earnings per share of $0.15 per share, while its net income for the full year stood at $1.3 billion.
Additionally, CNH Industrial N.V. (NYSE:CNH) reduced its agricultural production hours by 34% in Q4 and 28% for the whole year, improving efficiency, to counter the declining demand. These advances helped lower stock levels by over $700 million at the dealer’s end in Q4. Through manufacturing process optimization and increasing operational efficiency, the company was able to achieve $600 million in cost savings.
Despite the challenges from the equipment market, CNH Industrial N.V. (NYSE:CNH) continued its investments in precision agriculture and upheld its pricing discipline. Accordingly, in-house production for precision components saw an increase to 80% in 2024 from 60% in 2023. This improvement furthered product innovation and cost savings. Furthermore, the company reported a net income of $379 million for the full year for its Financial Services segment, supplemented by efficient risk management and secure asset returns.
Under the market conditions, CNH Industrial N.V. (NYSE:CNH) projects its sales to drop by 13%-18% due to an expected decline in the demand for agricultural equipment by 5% to 10%. Having already experienced the decline in demand and inventory levels during the last quarter, skepticism is high among the short sellers, making CNH one of the worst farmland and agriculture stocks to buy according to short sellers.
Overall CNH ranks 6th on our list of the worst farmland and agriculture stocks to buy according to short sellers. While we acknowledge the potential of CNH 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 CNH but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.
Disclosure: None. This article is originally published at Insider Monkey.