The little-known agriculture stocks shaping the future of alternative protein

Not every corner of the plant-based food industry has been burned. After the boom-and-bust cycle of Beyond Meat stock, analysts have wondered what comes next for the plant-based food space. The answer could be seed improvement, which is emerging as an area to watch as weight-loss drugs gain popularity and scientists evaluate how to best feed a growing population. “Better-for-you food from the start is a mega trend,” said Kristen Owen, an executive director at Oppenheimer. “Whether you want to call it 'food is health' or sort of 'bespoke nutrition,' this is the direction that the market is heading. And we have, now, some really important tools to unlock that potential.” The alternative protein market Beyond Meat's struggles have left some skeptical about which companies have what it takes to meet the needs of consumers who want to avoid animal-based products for health or environmental reasons. After topping $230 per share at its highest point, Beyond Meat stock now trades below $7. Wall Street sees more pain ahead. The average analyst has a sell rating on the stock with a price target of $5.75, which implies shares could fall another 13%, according to LSEG. BYND ALL mountain Beyond's stock performance Pricing challenges, uncertainty around health benefits and limited interest from restaurants are among reasons why alternative meat has struggled, according to Morgan Stanley analyst Michael Canfield. He said the firm sees less of an opportunity than was originally expected for the market. Beyond Meat's annual sales peaked in 2021 at $464.7 million, as people sampled its products. But two years later, sales for 2023 are expected to fall to $336.4 million, according to FactSet. Still, other plant-based foods are faring better, Canfield said. Despite fake meat's fall from grace, analysts are optimistic on the investing opportunity around companies like Corteva , which makes seeds more nutritious and improves crop yields. The idea is that, through science, companies can help farmers produce higher-protein crops like corn or soybeans . The process starts with the seeds rather than adding to the product later. That's beneficial because the former process can require fewer resources to execute when running at scale. Plant-based foods with more protein and nutrients are likely to be favored by consumers who are looking to add protein to their diet without eating traditional meat. These buyers may have been turned off by fake meat due to taste or concerns about its health benefits. CTVA .SPX YTD mountain Corteva vs. the S & P 500 this year Corteva has underperformed in 2023, losing more than 21%. But Wall Street sees a rebound ahead, with the average analyst holding a buy rating and price target reflecting an upside of more than 26%, per LSEG. Morningstar analyst Seth Goldstein said the stock has mainly struggled because it has been a down year for its crop protection business. But Goldstein said the downcycle is temporary, with an end expected later this year or early next year. “The markets take a shorter-term view, looking at the near-term profit decline,” he said. “We're taking a longer-term view, and we view the recent sell off as a good opportunity for investors to take a look at this high-quality name.” Morgan Stanley analyst Vincent Andrews also expects the bout of underperformance is an opportunity to buy in. He guided 2023 EBITDA forecasts above Wall Street consensus, noting that the seed price and mix should positively surprise analysts. 'A wholly untapped opportunity' Part of the company's investing thesis is tied to the broader healthy food trend, Owen said. As weight-loss drugs like Ozempic and Zepbound become increasingly mainstream , she said there's more consciousness about seeking out healthier foods. And addressing that demand starts with seed providers, Owen said. “How food and health are related is a wholly untapped opportunity,” Owen said. Investors may have heard of Corteva because it was spun off from the chemicals giant then known as DowDuPont in 2019 as an agriculture pure play. Elsewhere, Owen noted Ingredion and Green Plains as other stocks to watch around the trend. Ingredion's plant-focused business could start driving earnings growth in 2025 as the category recovers, Owen said. She said the company is also in a good position because it is more tied to dairy, which has performed better in the alternative food market than fake meat. Products derived from oat milk and almond milk have gained in popularity. In 2022, about 18% of U.S. households were purchasing plant-based meat, according to the Good Food Institute . However, about 41% of households were buying plant-based milk, the nonprofit think tank said. The repeat rate for plant-based milks was also higher, it said. Meanwhile, Green Plains is developing an ultra-high protein through ethanol processes, which Owen said could help the biorefinery grow its earnings potential. Both Ingredion and Green Plains have underperformed the broader market in 2023. Despite the tough year, the average analyst has buy ratings for each name with a price target reflecting upside ahead. There's a business argument beyond the alternative protein market that can bode well when forecasting demand, Morningstar's Goldstein said. These companies' products also help farmers increase crop yields, which can be particularly useful as more food is needed for a growing world population. Beyond Corteva, Goldstein pointed to plant-protein producer Archer-Daniels-Midland as another name that could benefit from moves to meet the needs of an increasing population. Though the stock has tumbled around 20% this year, the average analyst holds a buy rating with an upside implying shares could climb more than 24% in the next year, according to LSEG. Ultimately, Owen said a key reason to like Corteva — and other seed-focused stocks — is the focus on products that are useful to farmers. Corteva's scale is also a plus in the agricultural industry, the analyst added. “Corteva is a really important partner for those growers,” Owen said. “They have, by virtue of some of their existing assets, some of the best tools that farmers can use in their toolkit.” — CNBC's Michael Bloom contributed to this report