It's an understatement to say that investors in FMC (FMC +1.52%) have had a tough year. Year-to-date, shares in the fertilizer and agricultural chemicals company have fallen by nearly 73%. By comparison, the S&P 500 index is up almost 17%.
FMC's significant declines are primarily due to weak results, coupled with the company's decision to reduce its quarterly dividend from $0.48 per share to $0.08 per share. Worse yet, it's not as if the dust has fully settled. Uncertainty over the company's future remains high, casting doubt on whether it's time to buy the dip.
NYSE: FMC
Key Data Points
In contrast, there is another agricultural stock that not only has performed far better than FMC but may be on the path to deliver steady, solid gains in the years ahead as it capitalizes on advancements in artificial intelligence (AI) to produce a whole new revenue stream. The "other agricultural stock" I'm referring to is Deere & Co. (DE +0.19%).
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How FMC could stay in a slump
In some cases, buying on weakness can be a profitable strategy. In other cases, it can be akin to trying to catch a falling knife. This year, FMC has been a prime example of this. Investors who bought in at between $30 and $40 per share, after the stock's initial drop last winter, experienced heavy losses when the stock tumbled again in October following the news of the dividend cut.
That event resulted in shares going from $30 down to as low as $12.17 per share. Currently, FMC is trading modestly above its lows, but don't assume it's all uphill from here. Recently, Barclays analyst Benjamin Theurer downgraded the stock, citing the prospect of further market-share losses and margin pressure. Theurer also noted that FMC's credit downgrade could complicate restructuring efforts.
Yes, FMC's forward valuation reflects this high uncertainty. Currently, the stock trades at a forward price-to-earnings (P/E) multiple of just 6. That's well below the valuation of similar agricultural input stocks, such as CF Industries and The Mosaic Co. Both of these names are also currently trading at discount forward valuations.
Moreover, until positive news emerges, it may be best to assume that subsequent developments will continue to weigh on the stock. For instance, if management or analysts further walk back expectations for 2026, this may result in a further pullback for FMC.
A more promising alternative
In contrast to FMC, Deere saw far steadier price performance. Shares are up 11% year to date. Although this stock experienced some volatility, pulling back in recent months due to challenges in the agricultural sector, it's shown resilience compared to what FMC experienced.
NYSE: DE
Key Data Points
Better yet, while Deere's 2025 gains of 11% trailed those of the S&P 500, a period of much stronger share-price performance could be on the horizon. For years, the company has been pivoting toward selling technology-enabled recurring services.
By scaling up this business further, Deere aims to establish a robust, recurring revenue stream for the company. Coupled with improved macroeconomic conditions in the agricultural sector, this could pave the way for Deere to meet its growth and margin goals for 2026 to 2030.
Management is targeting 10% annualized sales growth and 20% operating margins. Recently, operating margins averaged around 17%. Wall Street is skeptical of these plans, but this may work to an investor's advantage.
Why you should buy Deere
Deere stock may seem expensive right now at 28 times forward earnings. Competitors like CNH Industrial and Toro trade at far lower forward P/E ratios. Still, if Deere's tech pivot pans out, this stock may not only be able to sustain its valuation but also add to it.
Taking into account Deere's growth strategy, analyst estimates call for the company's earnings per share (EPS) to grow 49% between the fiscal years ending October 2026 and October 2028 or by over 14% on an annualized basis.
Effective earnings growth could come in even stronger, depending on how quickly the aforementioned macroeconomic challenges in agriculture subside. Also, consider Deere's dividend. It may only have a forward dividend yield of 1.38%, but it has been growing steadily in recent years.
Add it all together, and there's much to suggest solid total returns ahead for this stock. Hence, if you're bullish on the sector, take a pass on FMC and make Deere your top choice.
