Finding growth in food and farming stocks
Professional investor Mayssa Al Midani of the Pictet Nutrition Fund picks three of her favourites companies helping to fix our fraught food systems.
In the next three decades, the world will have an extra 1.5 billion mouths to feed. That is a big challenge with current resources within the context of two simultaneous crises – one environmental, the other a so-called “double burden of malnutrition”, in which some two billion people are obese or overweight while a similar number suffer from insufficient access to nutrition.
There is growing demand for food to be healthy and nutritious, as well as for production methods to be sustainable. These trends have been accelerated by the pandemic. From farm to fork, there are opportunities for investors to tap into companies providing solutions to our fraught food systems – the best way of addressing global environmental and health challenges simultaneously.
Boosting crop yields
With limited scope to increase arable land, we need technology to boost productivity and yields. This is supported by EU and US policies to promote resource efficiency in agriculture while reducing the use of chemical pesticides and antimicrobials.Covid-19 has highlighted the link between poor diets and vulnerability to disease. Policymakers are pushing for reduced levels of sugar, salt and saturated fats while consumers are opting for foods and supplements offering benefits such as improved immunity.
A growing number of companies are capitalising on the opportunity to feed the world in a healthy and sustainable manner. John Deere (NYSE: DE) is the world’s leading equipment manufacturer in the precision-agriculture sector. Appetite for new equipment is high given an ageing fleet (the oldest it has been in 30 years) and a growing awareness of the economic and environmental benefits of precision agriculture. Profitability in farming has returned to levels last seen in the 2011-2014 supercycle given high crop prices and strong harvests, making equipment upgrades more affordable.
A pet-health provider in pole position
In animal health, Zoetis (NYSE: ZTS), the biggest producer of medical treatments for pets and livestock, is well positioned to capitalise on market growth given its broad portfolio of blockbuster drugs, world-class manufacturing operations, speed to market and innovation capabilities. Its diagnostics business adds a new layer of superior growth and recurring revenues, allowing for preventative care of animals. US-based Zoetis has best-in-class margins among its peers and should continue to expand thanks to operating leverage and pricing power from innovation.
Finally, in the nutrition sector, DSM (Amsterdam: DSM) stands out for particularly innovative products. For humans, these include dietary supplements, fermented stevia (tastier, healthier versions of traditional sweeteners) and human-milk oligosaccharides (a collection of carbohydrate structures that may help support immunity and gut health).
The Dutch firm also specialises in animal nutrition, as its headline-grabbing “Clean Cow” initiative demonstrates. It involves the addition of a feed supplement that DSM says can reduce the amount of methane cows release into the air by at least 30%. The innovative portfolio of products, together with underlying portfolio organic growth, should underpin double-digit medium-term earnings growth.
• Mayssa Al Midani was recently a guest on the MoneyWeek Podcast. Listen to the episode here