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VanEck Agribusiness ETF (NYSEARCA:MOO) is not alone in this description: For the past 3 years, it has done a complete round trip in price, from $73 to $101 and back to $73. It has been in a downtrend throughout most of 2022 and 2023. So why am I writing about this “loser?” Because I’ve seen its potential in the past, and I really like this agriculture theme over a longer-term time frame.
I’m not looking to own it today, but it is definitely on my list of ETFs to seriously consider when the stock market catches a long-term bid. I don’t know what month or even what year that is going to be. But from experiencing every market calamity since the mid-1980s, one thing I’ve learned is that when you’re in a bear market, prepare like you are in a bull market. That is, know what you will be ready to own “at a price” even if that price is nowhere near where the ETF trades now.
MOO is a 16-year-old ETF with over $900 million in assets that trades about $6 million worth of shares on a typical day. Its portfolio consists of 59 stocks which span a wide range of industries, but with the common denominator of being related to some part of the farming process. Long-term, there is a global food shortage, and that makes the types of companies MOO owns essential providers of technology and production to feed the world.
MOO: A Head-on Collision Between New Tech and Old Problems
It feels like the world is on one coordinated fast track toward automation, digital innovation, and “smart” technology. In spite of the nostalgic image of a farm with an old tractor, and an equally aged farmer, agri-business is no different than the rest of the world. Smart Farming, computer vision, AI, robots and drones have all become factors in the modern agriculture.
As traditional farming becomes less desirable, Agri-tech ascends to become an integral part of farming, as well as other sub-sectors of the agricultural sector going forward. This delivers many benefits to producers as well as consumers: Controlled environment agriculture, data and analytics, connectivity, precision, and drones and/or robots to do the undesirable grunt work, to name a few.
This trend towards automation will only help to deal with the challenges facing the Agribusiness industry. According to the United Nations:
“By 2050 we will need to produce 60% more food to feed a world population reaching nearly 10 billion. Even if we hit that mark, 300 million people will still be grappling with food scarcity.” – United Nations
This kind of demand, added to that for biofuels such as ethanol as a cleaner energy source than fossil fuels, crashes head-on into scarcity and volatility created by wars, droughts, floods, and other – often unpredictable – weather and climate events. Scarcity can drive up prices for agriculture sector products, but can also expose vulnerabilities in the various sub-sectors within agricultural supply chains. It remains to be seen whether or not the agricultural sector can innovate and transform enough to meet the challenges.
Specific ETF Details
MOO is a globally diverse ETF, though as I prefer, its top 10 holdings are concentrated. They account for more than 55% of MOO assets. As noted earlier, MOO has been a poor performer. But a closer look at the following chart will reveal something interesting.
In the past decade or so, there are 3 distinct periods of time where MOO was lagging below the S&P 500 by more than 15%. We are in such a time right now. If we look at the last 2 times this happened (2015 and 2020, respectively), we can see that when this happened, we can see that what immediately followed was a 10-15% jump in the value of MOO. Since we are currently in one of those times where MOO lags below SPY by at least 15%, there is “value” by that one metric. By focusing in on 2013-2016, we can see this even more clearly.
5 of the 6 top holdings of MOO (Seeking Alpha)
This comparison chart of 5 of the 6 top holdings of MOO using Seeking Alpha’s quant grades has a rainbow of colors! Different members of the current portfolio are at different stages of battling weak spots in their business cycles. Inflation is one major factor here, and near-term demand concerns are another. This is not yet an investment theme flush with earnings growth, though the companies are solidly profitable.
MOO’s current portfolio sells at only 12 times trailing earnings and just 0.75 times sales. But no one cares about that in an environment like this one. It pays a modest 2.5% dividend yield, but going forward, a pickup in earnings growth of nearly 14% is forecasted by Wall Street analysts. That speaks to the cyclical nature of agri-business stocks.
MOO: Food for Thought!
MOO is in an attractive industry for long-term purposes. I can see it becoming a solid supporting position in my portfolio. Much of its portfolio is somewhat correlated to commodity prices, so watching that part of the financial markets could produce some clues as to the timing of a long-term entry point. I rate it a hold for now, but it is on my bull market watchlist. It could become a long-term buy very quickly. I just can’t say that it is right now.
