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 Cal-Maine Foods, Inc. (NASDAQ:CALM) 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 an organic egg being carefully washed and inspected before being packaged.
Cal-Maine Foods, Inc. (NASDAQ:CALM)
Number of Hedge Funds: 34
Short % of Float: 16.84%
Being the largest manufacturer and supplier of fresh shell eggs in the U.S., Cal-Maine Foods, Inc. (NASDAQ:CALM) supplies various conventional and specialty eggs. The company serves various grocery stores, club stores, and food service distributors across multiple U.S. regions. It promotes its products under leading brands such as Egg-Land’s Best, Land O’ Lakes, and Farmhouse Eggs.
Cal-Maine Foods, Inc. (NASDAQ:CALM) recorded net sales of $954.6 million for Q2 ended November 30, 2024. This marks a substantial increase from $523.2 million in the same quarter from the year before. In the same period last year, net income was $17 million, or $0.35 per share, which increased to $219 million, or $4.47 per diluted share during the quarter. The company profited from low supply levels due to Highly Pathogenic Avian Influenza (HPAI), causing surging rates, rising demand, and breakthrough sales volume. Accordingly, the sales for specialty eggs amounted to 120.2 million dozen, over a 25% year-over-year increase.
Furthermore, Cal-Maine Foods, Inc. (NASDAQ:CALM) Foods strives to make strategic investments to broaden its operations. The company plans to amplify its cage-free capacity, adding five new layer houses and two pullet houses across various states, costing approximately $60 million. Additionally, to facilitate the extended shelf-life of liquid egg products, the company plans to invest $15 million in the advanced development of its Georgia egg products processing facility. Looking ahead, by the next fiscal quarter, the company will intensify its production capabilities as it’s on track to bring an acquired processing plant and hatchery in Missouri online.
Cal-Maine Foods, Inc. (NASDAQ:CALM) had secured certain assets of Deal-Rite Feeds, Inc., which includes two feed mills and related operations in North Carolina, marking a significant expansion. By lowering feed expenses and enhancing supply chain efficiency for its regional shell egg operations, the acquisition aligns with the company’s strategy to optimize production costs. In addition to that, a $500 million share buyback program has been approved by the board to support shareholder value. Also, the company issued a quarterly cash dividend of $1.49 per share, in line with its variable dividend policy.
However, bearish sentiments have been driven by concerns over potential ownership restructuring, supply chain volatility, and ongoing risks from HPAI. This can be seen from the high short selling activity related to the stock, making it one of the worst farmland and agriculture stocks to buy according to short sellers, despite the strong performance of the company.
Overall CALM ranks 1st on our list of the worst farmland and agriculture stocks to buy according to short sellers. While we acknowledge the potential of CALM 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 CALM 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.