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).
Is The Scotts Miracle-Gro Company (SMG) The Best CBD Stock To Invest In Right Now?
A farmer standing in a lush field of vegetables that has been enhanced by the company's hydroponic products.
Scotts Miracle-Gro Company (NYSE:SMG) specializes in lawn and garden care, building its reputation by supplying a portfolio of fertilizer, hydroponic products, and soil solutions. The company caters to both traditional and indoor growers, and its operations are spread across the consumer lawn care market and the hydroponics sector.
Reflecting the stable demand in its core U.S. Consumer segment, The Scotts Miracle-Gro Company recorded $417 million in net sales for Q1 ended December 31, 2024. The company neutralized expected softness in its Hawthorne hydroponics division with an 11% volume increase in consumer lawn and garden products, reflecting its strong performance. Furthermore, lower material costs and supply chain efficiencies resulted in the gross margin rising to 24%, a significant improvement.
Additionally, Scotts Miracle-Gro Company’s (NYSE:SMG) multi-year Project Springboard initiative has already delivered $400 million in savings, showcasing the company’s focus on operational improvements. As part of its long-term efficiency plan, the company strives to cut an additional $75 million in supply chain costs in fiscal 2025. Alongside that, the company is growing its investments in marketing and consumer outreach, which includes a $40 million increase in brand support to drive engagement across all retail mediums.
The company’s Board of Directors authorized a cash dividend of $0.66 per share to enhance shareholder returns. It is to be paid on March 7, 2025. In addition to this, with a clear direction toward further balance sheet improvements, Scotts Miracle-Gro Company (NYSE:SMG) is lowering its leverage ratio to 4.52x net debt to adjusted EBITDA to continue to pay down debt.
However, amid the ongoing challenges in the hydroponics sector, short selling activity has remained high for the stock, placing it among the Worst Farmland and Agriculture Stocks to Buy.
Overall SMG ranks 4th on our list of the worst farmland and agriculture stocks to buy according to short sellers. While we acknowledge the potential of SMG 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 SMG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
