1 Unusual Stock Trading at Rock Bottom Levels

It’s rare to find an $8.6 billion market capitalization firm that is severely undervalued. Once you get to the billion dollar company level, analysts and investors are astutely aware of what an enterprise is worth as they run quarterly financial models to assess value.

But every once in a while a deal crops up, sometimes because of mis-perceptions or mis-pricing in the market, and other times because capital flows point towards higher prospect opportunities. Whatever the reason, it seems that AGCO is trading at rock bottom prices now.

The billion dollar question is whether price momentum will continue south or has all the bad news been priced in?

Key Points

• AGCO is a farming company that has a low price-to-earnings ratio, price-to-sales ratio, consistent earnings and a high dividend.
• On a valuation basis, it has considerable upside potential to fair value of $142 per share according to analysts.
• It’s also got a fortress balance sheet and a history of rewarding shareholders over the past 5 years.

A Needle In the Haystack

Finding a real bargain these days isn’t like it was back in Buffett’s day. Famously, the Oracle of Omaha was able to pick up GEICO for around 8x earnings.

These days, information is much more widely available and so Buffett’s edge in reading reports from dawn til dusk has largely been arbitraged out of the market. But every once in a while a deal stands out, and AGCO seems to be that needle in the haystack, or perhaps is better described as the diamond in the rough.

Trading at just 7.5x earnings and offering a 5.3% dividend yield, AGCO both has a low valuation and an enticing yield for income-seekers. It’s unlikely the firm’s dividend will go by the wayside anytime soon, either. The company has reported solid profits for most of the past decade, including the past year.

Relative to near-term earnings growth, the PE ratio is low too. And history shows a consistently climbing earnings per share that is forecast to remain steady or rise modestly in the coming few years.

This farming stock really has a lot going for it, so is it a buy now?

Is AGCO a Buy?

14 analysts cover AGCO and the consensus among them is that fair value sits around $142 per share, suggesting over 20% upside from present levels. Indeed, a cash flows analysis is more optimistic and has intrinsic value pegged closer to $167 per share.

Trading less than 1x sales, it’s difficult to make a case that AGCO is anything but undervalued. Ultimately the Street cares about profits and sales, and it’s that second item where sentiment shifted negative recently as the top line plateaued. Nonetheless, it’s hard to argue too much with a management team that has been able to squeeze out profits regardless of top line sales for 10 years straight.

If anything AGCO is likely the under-the-radar, out-of-favor stock that nobody is paying attention to in 2023 but may well find renewed interest in when the calendar year turns and the high-flying stocks run out of oxygen at elevated levels. Keep a close eye on this agricultural play, it might yet start harvesting a return for those willing to invest in a winter plantation.