Rampant inflation affected price tags across every sector, including grocery items and restaurants. Today, thanks to the efforts made by the FED in combating these out-of-control price increases, consumers have an easier time budgeting for these items.
The food consumption supply chain also benefits from farming equipment and fertilizers to transport and food logistics.
Tractor Supply Co.
Considered to be one of the top investments in the agricultural industry, Tractor Supply Co. (NASDAQ: TSCO) is a steady profit center for this pocket of the economy, with more upside now that businesses gain confidence in the future costs and demand for products.
This stock has recently dipped from its all-time high price of $251.17, giving investors a unique opportunity to buy cheap shares in an industry favorite. This business consistently brings in over 12% of ROIC (return on invested capital).
Return on invested capital (ROIC), specifically consistent and reliable ROIC, is crucial for shareholders. Over a long enough period, the annual returns in a stock price begin to match the percentage returns seen in those consistent ROIC rates, making the first pillar of double-digit returns in Tractor Supply.
A second pillar comes from analyst ratings, coming together for a consensus upside of 15.8% from today’s prices, matching the long-term average ROIC that this business should keep delivering.
Momentum showed its face within the company’s second quarter 2023 earnings presentation, giving investors and analysts more reason to be bullish in their future outlooks. It started with a net sales growth of 7.2% during the year, with further growth to follow.
Gross margins boosted to 36.2% from 35.5% a year prior, showing markets the initial benefits of an easing supply chain with normalizing input costs and other expenses. These benefits trickled, and will continue to trickle, down into the business’s net income, which grew by 6.2%.
Earnings per share grew by a similar though improved tone. An 8.5% jump in EPS is one of the main factors driving the stock price upward since EPS typically goes stock valuations if all else is equal.
Management also repurchased up to 2.2 million shares during the period, adding up to $157.4 million returned to shareholders and sending a powerful message.
These buybacks were effected at an average price of $222.4 a share, enabling investors to buy the stock even cheaper at today’s prices and partake in insider optimism.
C.F. Industries Holdings Inc.
Of course, demand for farming supplies can only occur through an equally demanding farming environment. Enter C.F. Industries Holdings Inc. (NYSE: CF), a leading fertilizer chemical producer, allowing for the restocking of U.S. farming supply chains after the effects of the COVID-19 pandemic.
As part of a more extensive cyclical play with lots of upside, C.F. is beginning to attract much attention with some new investor money.
As a global player in the fertilizer space, this stock should benefit from demand across markets just now shaking off the lockdown effects, setting up for a national resupply.
Management has repurchased up to two million shares for $130 million during the quarter, following the same industry viewpoints seen in Tractor Supply. It’s time to hear what analysts have to say.
With a consensus target price falling on $91.06, C.F. analyst ratings imply a 23.8% upside potential from today’s prices.
Perhaps a function of the latest financials or a broader vote on the next twelve months of expected earnings per management guidance, this is another pillar for a double-digit potential play.
C.F. also offers a tremendous discount to industry peers against names like FMC Corp. (NYSE: FMC). Overlooking the widely-followed price-to-earnings ratio, it becomes evident that C.F. provides a 60% discount to FMC, as seen in their respective 6.1x versus 15.3x P/E multiples.
J.B. Hunt Transport Services Inc.
Finally, food products need specific transport networks delivered to customers, right? It’s where the last piece to the supply chain portfolio comes in: J.B. Hunt Transport Services Inc. (NASDAQ: JBHT) takes the stage.
It may sound counterintuitive to consider a potential purchase in a business that posted double-digit contractions across the board during its second quarter of 2023. However, the reason behind the declines will act as support for a new rise.
Lower shipping and freight costs drove contractions in this business, which confirms Tractor Supply and C.F.’s incoming profit rampage.
The key here is volume, which J.B. will surely experience once the decline in shipping costs incentivizes customers to expand their service requests.
Analysts gave their EPS projections for the next 12 months, set at a rate of 16.8%. All else being equal, the stock price should mirror this jump in EPS and provide investors with a double-digit rise during the same period.
J.B. is the favorite in large-cap logistics, especially when placed next to competitors like United Parcel Service Inc. (NYSE: UPS) and FedEx Corp. (NYSE: FDX). Taking the forward P/E of each stock can tell investors where markets value the next twelve months of earnings for each.
Carrying a superior 20.7x ratio, J.B. is the most valued stock in this group, considering UPS’s and FedEx’s 15.8x and 11.2x respective valuations. A willingness from markets to pay a premium for one store over similar ones can be taken as a vote of confidence in growth and quality for the coming year.