The stock market is a scary place right now. The S&P 500 and Nasdaq are all deep in the red year to date. With raging inflation and an aggressive Fed, the outlook doesn't seem particularly bright either.
Yet GAMCO Investors chairman and CEO Mario Gabelli still sees opportunities on the horizon - particularly in agriculture.
Mitt Romney says a billionaire tax will trigger demand for these two physical assets - get in now before the super-rich swarm
You could be the landlord of Walmart, Whole Foods and Kroger (and collect fat grocery store-anchored income on a quarterly basis)
What do Ashton Kutcher and a Nobel Prize-winning economist have in common? An investing app that turns spare change into a diversified portfolio
"We want to buy agricultural companies," the billionaire investor tells CNBC. And for good reason. The agricultural industry receives billions of dollars in global subsidies every year.
In 2020, the Organisation for Economic Co-operation and Development found that governments worldwide provide an average of $536 billion per year of direct support to farmers.
Gabelli points to two names he likes in particular from the sector.
Commanding over $100 billion of market cap, Deere is one of the largest manufacturers of agricultural machinery and heavy equipment in America. So it's no surprise that the stock is on Gabelli's list.
"We like companies like Deere," he says.
Despite supply chain pressures, Deere's net sales rose 25% year over year in the quarter ended July 31. At the same time, the company earned a net income of $1.88 billion, or $6.16 per share, marking a substantial increase from the $1.67 billion, or $5.32 per share in the year-ago period.
The stock has also been resilient amid the broad market's sell-off.
Year-to-date, Deere shares are up 5.5%, in stark contrast to the S&P 500's double-digit percentage drop.
CNH Industrial (CNHI)
CNH Industrial is a British-American equipment and services company. While the company is not as big as Deere in terms of market cap, its Case and New Holland brands have built entrenched positions in the agriculture and construction machinery industry.
"We particularly like at the moment: Case New Holland," Gabelli tells CNBC.
"There are 1.3 million shares, the stock is around $12. We think they can earn a buck and a half to $2, within 12 months."
Indeed, the company has been growing its bottom line. In Q2, CNH Industrial's adjusted diluted earnings per share came in at 43 cents, up from 37 cents earned in the same period last year.
Consolidated revenue totaled $6.08 billion for the quarter, representing a 17.5% increase year over year. This was driven by a 19% growth in net sales from the agriculture segment to $4.72 billion.
Still, CNH Industrial shares are down 25% so far in 2022. If you agree with Gabelli's view, the company could be a contrarian opportunity.
More ways to invest in agriculture
Agriculture is a recession-resistant industry. Concerns about a global food shortage have already led to strong prices in agricultural commodities.
For a convenient way to get broad exposure to the sector, check out the Invesco DB Agriculture Fund (DBA). It tracks an index made up of futures contracts on some of the most widely traded agricultural commodities - including corn, soybeans, and sugar.
Investors can also use ETFs to tap into individual agricultural commodities. The Teucrium Wheat Fund (WEAT) and the Teucrium Corn Fund (CORN) have gained 20% and 28%, respectively, in 2022.
Last but certainly not least, you can consider investing in farmland itself. After all, Gabelli isn't the only billionaire bullish on agriculture: Bill Gates now happens to be the largest private owner of farmland in the U.S.
It's easy to see the appeal of this asset class: markets can go up or down, but no matter what happens, people still need to eat. That makes farmland intrinsically valuable.
What to read next
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.