One of the big secular themes that still has a long way to go is the importance of agriculture and feeding a world that has millions more coming into the middle class every year. As these people get richer, their dietary preferences change, which includes more meat and proteins. This is a boon for the agricultural sector and this company is a great way to play that. Meet AGCO Corporation (AGCO).
According to Yahoo! Finance, the company manufactures and distributes agricultural equipment and related replacement parts worldwide. AGCO provides tractors, including compact tractors for small farms and specialty agricultural industries comprising dairies, landscaping, and residential areas; utility tractors, such as two-wheel and all-wheel drive versions for small and medium-sized farms.
Boom Times
I like the stock because it is a “picks and shovels” way to play the boom. In June, the U.S. Department of Agriculture said that bad weather this spring will shrink the fall harvest, which is putting further upward pressure on prices for such things as corn. This is enriching farmers, who spend more money on equipment from companies like AGCO when they feel flush.
Cash Generator
After digging into the company’s financial statements, I came away impressed. Cash flow from operations, which is one of my favorite measures, rose from $291 million at the end of 2008 to almost $440 million at the end of last year. This is a great way of measuring value creation. It has a managable debt load at only 23% debt/equity and its ROE is 11.3%.
Another factor I love about AGCO is the company’s ability to beat earnings views. Over the past four quarters it has exceeded the consensus by at least 15.80%, and posted a whopping 113% beat last quarter. Over the past 90 days, this year’s estimates have soared 86 cents per share to $3.90.
The stock is cheap at less than 11x forward earnings and a price/sales ratio of only 0.63x. I like the fact that the stock is down about $10 from its highs and view that as a good buying opportunity. I would look for this stock to be between $55-$60 within a year.
Farming Up Some Profits is an article from: 
