Amid a dismal stretch for stocks, the VanEck Vectors Agribusiness ETF (MOO) is one of the standouts among equity-based exchange traded funds.
These days, MOO’s roughly 3% year-to-date gain indicates that the VanEck is benefiting from multiple factors, including the arrival of an inflation-induced agriculture supercycle and Russia’s war against Ukraine.
Typically, many of MOO’s 55 holdings are considered value stocks, but with this year’s run-ups in some of these names, some analysts think the agriculture/food equity realm is getting pricey.
“However, at this stage, shares of many industry leaders are now overvalued, or at best fairly valued, according to Morningstar’s equity analysts. Mosaic, Nutrien, and ADM, for example, are all in overpriced territory after double-digit gains in 2022 and 2021,” noted Morningstar analyst Lauren Solberg.
In order, Nutrien (NYSE:NTR), ADM (NYSE:ADM), and Mosaic (NYSE:MOS) combine for approximately 16% of MOO’s weight. While these names and other MOO components may be richly valued, that alone isn’t reason to abandon the ETF.
After all, some of the catalysts that are driving MOO higher aren’t waning. Those include rising fertilizer prices — an important point when considering Mosaic, Nutrien, and several other MOO holdings.
“It is purely a good thing for these companies,” said Seth Goldstein, equity strategist at Morningstar. “Nutrien and Mosaic are commodities companies. Fertilizer and crop prices are the largest driver of their profits.”
Currently, markets appear to be pricing in an extended period of elevated fertilizer prices. While that’s a point of contention among some analysts, the point isn’t necessarily off base because natural gas prices are high and Russia shows little sign of departing Ukraine anytime soon. Both countries are important contributors to the agriculture and fertilizer ecosystems.
The news of elevated agriculture commodities prices could also compel farmers to invest more heavily in precision agriculture, and that could be a boon for companies such as Agco (NYSE:AGC), CNH Industrials (NYSE:CNHI), and Deere (NYSE:DE).
Morningstar analyst Dawit Woldemariam “points to agricultural equipment companies such as Deere and its competitors Agco and CNH Industrials, which have been developing tools for so-called precision agriculture, which aims to increase crop yields while lowering costs,” noted Solberg.
Deere is MOO’s second-largest holding at a weight of 8.13%, while CNH Industrials and Agco combine for almost 4% of the fund’s roster. MOO features exposure to several other agriculture equipment makers as well.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
