The stock market is a scary place right now. The S&P 500 and Nasdaq are both deep in the red year to date. With inflation raging and an aggressive Fed, the outlook doesn’t look particularly bright either.
But GAMCO Investors president and CEO Mario Gabelli still sees opportunities on the horizon — particularly in agriculture.
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“We want to buy agricultural companies,” the billionaire investor tells CNBC. And for good reason. The agricultural industry receives billions of dollars in global subsidies each year.
In 2020, the Organization for Economic Co-operation and Development found that governments around the world provide an average of $536 billion a year in direct support to farmers.
Gambelli points to two names he particularly likes from the industry.
With a market capitalization of more than $100 billion, Deere is one of America’s largest manufacturers of agricultural machinery and heavy equipment. So it’s no surprise that the stock is on Gabelli’s list.
“We like companies like Deere,” he says.
Despite supply chain pressures, Deere’s net sales rose 25% year over year in the quarter ended July 31. or $5.32 per share in the prior period.
The stock was also resilient amid a broad market sell-off.
Year-to-date, Deere shares are up 5.5%, in stark contrast to the S&P 500’s double-digit percentage decline.
CNH Industrial (CNHI)
CNH Industrial is a British-American equipment and services company. While the company is not as large as Deere in terms of market capitalization, the Case and New Holland brands have established established positions in the agricultural and construction machinery industry.
“We particularly like it right now: Case New Holland,” Gabelli tells CNBC.
“There are 1.3 million shares, the stock is about $12. We think they can make $1.5 to $2 in 12 months.”
Indeed, the company has increased its results. In the second quarter, CNH Industrial’s adjusted diluted earnings per share came to 43 cents, up from 37 cents earned in the same period last year.
Consolidated revenue was $6.08 billion for the quarter, representing an increase of 17.5% year-over-year. This was driven by a 19% increase in net sales from the agriculture sector to $4.72 billion.
However, shares of CNH Industrial are down 25% so far in 2022. If you agree with Gabelli’s view, the company could be a contrarian opportunity.
More ways to invest in agriculture
Agriculture is a recession-proof industry. Concerns about a global food shortage have already led to high prices for agricultural products.
For a convenient way to gain broad exposure to the sector, check out the Invesco DB Agriculture Fund (DBA). It tracks an index made up of futures contracts on some of the most widely traded agricultural commodities – including corn, soybeans and sugar.
Investors can also use ETFs to gain exposure to individual agricultural products. Teucrium Wheat Fund (WEAT) and Teucrium Corn Fund (CORN) posted gains of 20% and 28%, respectively, in 2022.
Last but certainly not least, you can consider investing in the farmland itself. After all, Gabelli isn’t the only billionaire with a penchant for farming: Bill Gates is now the largest private owner of farmland in the US
It’s easy to see the appeal of this asset class: markets can go up or down, but no matter what happens, people still have to eat. This makes farmland inherently valuable.
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This article provides information only and should not be construed as advice. Provided without warranty of any kind.