We recently compiled a list of the 7 Best Organic Food and Farming Stocks to Buy. In this article, we are going to take a look at where Corteva, Inc. (NYSE:CTVA) stands against the other organic food and farming stocks.
The farming and organic food industry is essential in meeting global food demand while catering to the growing preference for healthier and sustainable options. Despite challenges like fluctuating costs and climate change, the sector benefits from trends such as increased organic food consumption and alternative proteins.
Sector Performance
The broader market had a strong performance in 2024, largely driven by technology stocks in the first half, resulting in a roughly 16% (year-to-date) YTD increase. However, future performance remains uncertain due to ongoing market volatility.
In 2022, inflationary pressures in the U.S. reached a peak, fueled by rising input costs for commodities, transportation, and labor. Since then, inflation has gradually decreased, providing relief for businesses across sectors. Inflation continues to ease as the annual inflation rate slowed for a fifth consecutive month to 2.5% in August 2024, the lowest since February 2021. This has led to lower feed costs, improving margins in the agriculture industry. The sector is also experiencing stable poultry production, slight gains in pork, and challenges in herd recovery due to constraints in the beef industry, resulting in higher retail beef prices.
While alternative proteins remain an essential, yet small component in meeting global demand, their sales have recently contracted. Despite this setback, reduced access to capital infusions has benefited the sector by filtering out weaker products, resulting in stronger business plans with a clear focus on profitability.
Overall, food and farming companies are still grappling with the lingering effects of high inflation, particularly elevated commodity prices, as the ‘Farm Products’ sector has underperformed with a 7.80% YTD decline. Although consumer spending has remained stable, households have shifted toward a “value-driven” mindset, prioritizing affordability in response to the rising cost of living.
Agriculture Market
According to the Business Research Company Report, the agricultural sector is poised for robust expansion in the coming years. Projections indicate the market will reach $19,286.79 billion by 2028, growing at a compound annual growth rate (CAGR) of 7.7%, according to The Business Research Company.
Even the agricultural sector hasn’t been able to escape the impact of the ongoing AI revolution as farmers in the US are increasingly adopting AI to address key challenges like labor shortages and climate unpredictability. Technologies such as drones, self-driving tractors, and AI-driven crop management tools are helping farmers maintain productivity and profitability in an industry facing workforce declines and increasing costs. These innovations not only improve productivity but also help reduce expenses by optimizing resource use and enhancing efficiency across farming operations. AI is poised to transform agriculture, helping farmers “do more with less” and meeting the world’s growing food needs.
Organic Food Market
Organic food sales in the United States in 2022 broke through the $60 billion mark for the first time, hitting another high-level mark for the resilient organic sector. Total organic sales – including organic non-food products – were a record $67.6 billion, according to the 2023 Survey by the Organic Trade Association.
However, this market is also facing challenges, such as the shorter shelf life of organic products due to the absence of preservatives. According to Lending Tree, inflation last year had a greater impact on organic food prices compared to conventional products. In that period, organic fruit and vegetable prices rose by 13.1%, while conventional counterparts saw a 9.9% increase. Similarly, organic chicken prices surged by 19.5%, compared to a 5.9% rise in conventional chicken prices.
The outlook for the organic food industry remains strong, fueled by rising consumer interest in sustainability and health. Organic sales have more than doubled in the past decade, surpassing $50 billion, with food sales reaching this mark in 2019. Despite challenges like economic fluctuations and supply chain disruptions, the industry’s focus on sustainability positions it for continued growth.
Methodology:
For this list, we scanned Insider Monkey’s database of Q2 2024 and selected companies involved in the organic food and farming industries, covering areas including but not limited to processing and distribution of agricultural, industrial, feed, and organic food products. From that group, we picked 7 companies with strong balance sheets and solid financials and ranked them in ascending order of hedge funds having stakes in them.
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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A farmer in overalls, harvesting a golden cornfield with a tractor in the background.
Corteva, Inc. (NYSE:CTVA)
Number of Hedge Fund Holders: 43
Corteva, Inc. (NYSE:CTVA) provides seed and crop protection solutions in the agriculture and food supply sectors. It operates through two segments: Seed, which focuses on advanced germplasm and traits to boost farm yields, and Crop Protection, which offers products for pest and disease management, including nitrogen management and seed-applied technologies.
In Q2 2024, Corteva, Inc. (NYSE:CTVA) reported net sales of $6.1 billion and organic sales of $6.2 billion. This growth, driven by strong Seed performance and a modest rebound in Crop Protection volumes, marks an improvement from last year. The operating EBITDA margin increased by 248 basis points to 31.4%, highlighting the effectiveness of Corteva’s strategy to enhance its proprietary technologies and operational efficiency.
Notably, Corteva’s Seed business saw a 4% rise in organic sales for the first half of 2024, bolstered by strong pricing and broad gains. The launch of Pioneer brand Z-series soybeans, with a 2.7 bushel per acre yield advantage, has strengthened the company’s market leadership in North America’s corn and soybean sectors.
Corteva, Inc. (NYSE:CTVA) reported strong cash flow in the first half of the year. Free cash flow is expected to be approximately $1.75 billion, reflecting a conversion rate of around 50% of EBITDA. Additionally, it announced a 6.25% increase in its annual dividend, underscoring its confidence in its financial stability and future prospects.
On March 21, 2024, Corteva Agriscience launched Corteva Catalyst, a new investment arm within its R&D department aimed at accelerating the development of agricultural technologies. This hub will focus on investing in startups aligned with the company’s research priorities.
Corteva’s share price surged 7.52% in the past month and 15.68% year-to-date, fueled by strong financial performance, particularly from the seed segment.
However, the company’s future outlook includes some challenges, with lowered sales expectations due to product availability concerns, higher interest rates, and farmers deferring purchases. Crop Protection sales are expected to be impacted by these factors, signaling potential pressure on future revenue growth.
Of the 912 hedge funds tracked by Insider Monkey at the end of Q2 2024, 43 hedge funds have invested $1.1 billion in the company. Among these, Harris Associates has bought 14.2 million shares with a total value of $764 million.
Overall CTVA ranks 4th on our list of the best organic food and farming stocks to buy. While we acknowledge the potential of CTVA as an investment, our conviction lies in the belief that some 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 CTVA 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.
