MOO ETF: Agriculture Stocks Are Inexpensive and Defensive

Agriculture stocks might not seem like the most exciting part of the market to invest in at first glance, but the VanEck Agribusiness ETF (NYSEARCA:MOO) has plenty to offer investors. 

I’m bullish on this $789.3 million ETF from VanEck based on the defensive nature of the agribusiness industry, the underrated long-term growth potential it offers, and the inexpensive valuations of its holdings. It also offers investors an attractive mix of exposure to the United States plus developed and developing international markets.

Furthermore, many of the agribusiness stocks that MOO owns are dividend stocks, and MOO features an attractive dividend yield of 3.1%, further sweetening the deal for investors.  

What Is the MOO ETF’s Strategy? 

MOO is an agriculture and agribusiness ETF, as you can probably guess from its apropos ticker. 

MOO invests in an index (the MVIS Global Agribusiness Index (MVMOOTR)) that seeks to track the performance of companies that are involved in all aspects of the agribusiness industry. Per VanEck, this includes “agri-chemicals, animal health and fertilizers, seeds and traits, from farm/irrigation equipment and farm machinery, aquaculture and fishing, livestock, cultivation and plantations (including grain, oil palms, sugar cane, tobacco leaves, grapevines, etc.), and trading of agricultural products.” 

These companies are agriculture pure plays, as they must derive at least 50% of their revenue from agribusiness in order to be included in the index.  

There are plenty of compelling reasons for investors to consider this part of the market. First and foremost, it’s a historically defensive segment of the market at a time when the market has been turbulent. Demand for agricultural products isn’t going away any time soon. The world needs to eat. 

Furthermore, while it may not necessarily be explosive growth, the industry should enjoy secular tailwinds that will drive steady growth over the long term. Aas VanEck explains, “Global population growth is driving increasing food demand and the need for efficient agricultural solutions.” Furthermore, as more people in developing countries enter the global middle class, they are likely to consume more expensive food options, which behooves many of the companies MOO invests in. 

Finally, the sector is attractive, as it features many stocks with inexpensive valuations, as we’ll discuss further in the next section. 

Holdings from Across the Agricultural Landscape

MOO owns 48 different stocks from across the agribusiness industry, and its top 10 holdings account for a reasonable 56.7% of its assets. 

Below, you’ll find an overview of MOO’s top 10 holdings using TipRanks’ holdings tool.

I like the fact that MOO casts a wide net and invests in a diverse collection of stocks that are involved in many different aspects of the agriculture industry, from farm equipment to medicine for farm animals. 

Top holding Deere (NYSE:DE) is well-known as a manufacturer of agricultural machinery like its iconic green tractors, combines, and sprayers (in addition to construction equipment like bulldozers and lawn care equipment like mowers). 

On the other hand, holdings like Corteva (NYSE:CTVA) and Bayer (OTC:BAYRY) are involved in seeds and crop protection, while Nutrien (NYSE:NTR) and CF Holdings (NYSE:CF) supply fertilizer. Tyson Foods (NYSE:TSN) and Archer-Daniels-Midland (NYSE:ADM) supply and process raw materials for the food industry, while Zoetis (NYSE:ZTS) develops medicines, vaccines, and treatments for both livestock and companion animals.  

Beyond the top 10 holdings, MOO invests in some interesting, off-the-beaten-path stocks like the Faroe Islands’ Bakkafrost (LSE:0MQ2), which farms salmon, and Australia’s Treasury Wine Estates (OTC:TSRYF), which owns and operates vineyards around the world.

As such, MOO’s diverse array of holdings gives investors broad exposure to quite a few market sector. The fund has a 32.5% weighting towards consumer staples, a 27.5% weighting towards basic materials, a 23.6% weighting towards industrials, and a 16.5% weighting toward health care.

MOO also invests globally, giving investors plenty of exposure to many different countries. Just over half of the fund is weighted toward the United States, while both developed markets like Germany, Canada, Norway, and emerging markets like Brazil, Malaysia, and Indonesia are represented.

Overall, this part of the market serves up some very inexpensive valuations. For example, MOO sports an average price-to-earnings multiple of 14.2x (as of the end of March). Some significant holdings, like Archer-Daniels-Midland and Bayer, are even cheaper, trading for just 10.8x and 5.0x 2024 consensus earnings estimates, respectively.

These low multiples represent a steep discount to the broader market and give investors a sound margin of safety; the S&P 500 (SPX) trades for a much higher price-to-earnings ratio of 23.2x. 

What Is MOO’s Expense Ratio?

One drawback of MOO is that, as a smaller, specialized ETF, it isn’t particularly cheap. Its expense ratio of 0.53% is slightly below the average expense ratio for all ETFs (0.57%), but it can’t really be called a bargain. 

This expense ratio of 0.53% means an investor in the fund will pay $53 in fees on a $10,000 investment annually. Assuming the fund returns 5% per year and maintains this expense ratio going forward, this investor would pay $296 in fees over the course of five years. 

Is MOO Stock a Buy, According to Analysts?

Turning to Wall Street, MOO earns a Moderate Buy consensus rating based on 24 Buys, 24 Holds, and one Sell rating assigned in the past three months. The average MOO stock price target of $82.75 implies 16.9% upside potential.

Investor Takeaway

As you can see above, analysts see some compelling upside potential here. MOO is also a solid ETF that investors can use to add some defensive ballast to their portfolios.

I’m bullish on MOO because demand for food isn’t going away any time soon. This demand should grow slowly but surely over time as the world’s population increases and as more people in developing nations join the global middle class. The inexpensive valuations of MOO’s holdings add a nice margin of safety, and its 3.1% dividend yield adds to its attraction. If investors can stomach the moderately high expense ratio, this looks like a sound ETF to hold for the long term.  

Disclosure