Geopolitics Point to Cynical Upside for Bunge Stock (NYSE:BG) – Nasdaq

While the 2020s decade started off with a pandemic, a longstanding social one – that is, the inability of humans to share the vastness of our planet – threatens to define it. Cynically, though, this geopolitical framework may point to upside for Bunge (NYSE:BG), an agribusiness and food company. Essentially, an artificial critical goods supply shortage may bolster profitability. I am bullish on BG stock simply based on harsh realities.

BG Stock May Rise on an Ugly Math Equation

Amid the ugliness and unnecessary horror of the conflict, very few bright spots emerged. Undoubtedly, one of the most meaningful was the Black Sea Grain Initiative. Effectively, this agreement enabled Ukrainian grain exports to feed the global supply chain. However, Russia pulled out of the deal, leading to an ugly math equation: an artificial supply shortage will push up food prices, which theoretically should lift BG stock based on profitability implications.

To be sure, it’s not a new concept. More than a year ago, TipRanks reporter Sirisha Bhogaraju noted that “Russia’s blockade of Ukraine’s Black Sea ports could result in a major food crisis and particularly impact low-income countries.” Given that about 50 countries rely on Russia and Ukraine for at least 30% of their wheat import requirements, the former’s decision to invade the latter was practically destined to disrupt global affairs.

As well, an escalating wheat crisis at the time (due to a heat wave) forced India to ban wheat exports. With food prices soaring because of the conflict, BG stock represented one of the early winners, for lack of a better word, during the early days of the crisis. Therefore, the signing of the grain deal in July of last year represented a huge breakthrough.

Now, with the cancelation of the agreement, the world faces another serious disruption. Subsequently, it’s probably no coincidence that BG stock gained over 4% last week.

Few Winners Aside from Bunge

Conspiracy theories aside, there are few winners from the conflict in Eastern Europe. About the only ones are defense contractors and critical goods suppliers such as Bunge. Granted, BG stock represents an emotionally murky idea given the circumstances. Still, with arguably limited investment ideas in the market at this juncture, Bunge appears compelling.

As stated above, when the war broke out, BG stock benefited quickly. In fact, it hit an all-time closing high of $122.96 on April 18 last year. It’s reminiscent of the telehealth providers that skyrocketed following the initial disruption of the COVID-19 pandemic. Again, those companies enjoyed the fruits of an ugly math equation.

In fairness, BG stock carries some fundamental risk factors. Earlier this year, The Wall Street Journal reported that prices of grains and other food commodities could be volatile throughout 2023. On paper, this framework could adversely impact Bunge’s profit margins.

True, the war in Ukraine imposed an artificial grain shortage. However, the Federal Reserve’s efforts to tame inflation may slow the economy. While the job market has remained robust, recent data suggests that the central bank helped cool skyrocketing prices.

Nevertheless, the grain deal cancelation represents a major shock to the system. In addition, Russia’s attacks on the Ukrainian port city of Odesa threaten to further crimp food commodity supplies. Thus, the bullish narrative for BG stock may be back on again.

Still a Deal Despite the Drama

While a geopolitical deal may be off the cards for the foreseeable future, BG stock offers a compelling discount. Right now, the market prices shares at a forward (projected) earnings multiple of only 9.29. This ratio has moved up since sitting at 6.87x at the end of September 2022. Still, it’s a bargain based on the broader context.

Currently, the underlying farming/agriculture sector prints a forward multiple of 33.56, and while the sector’s trailing-year earnings multiple sits lower at 22.12, no matter how you cut it, BG stock looks cheap.

As a bonus, Bunge also offers a dividend yield of 2.38%. True, it’s not the most generous source of passive income. However, the payout ratio sits at 19.35%, meaning that investors don’t have to fret much about yield sustainability.

Is Bunge Stock a Buy, According to Analysts?

Turning to Wall Street, BG stock has a Moderate Buy consensus rating based on five Buys, two Holds, and zero Sell ratings. The average BG stock price target is $122.57, implying 12.7% upside potential.

The Takeaway: BG Stock is in the Right Place at an Ugly Time

Although Russia’s invasion of Ukraine represents a catastrophe that no one asked for, the takeaway is that BG stock stands at the right place at an incredibly ugly time in history. Despite the raw emotions associated with the broader thesis, investors can’t deny the math. An artificial supply shortage will likely boost demand, which bodes financially well for Bunge.

Disclosure

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.