As the final installment of our three-part “Dogs of the Dow/S & P 500” series of articles, we’re following up on Monday’s trade idea in ConocoPhillips , an idea for an “oil” company of another variety. Rather than an energy sector oil/petroleum company, this time, we’re discussing a consumer staple that makes edible oils. Bunge Global is one of the world’s largest traders and processors of grains and oilseeds, such as soybeans, corn, wheat and sunflower seeds. It supplies raw materials for food production, animal feed, and renewable energy. The agribusiness segment represented over 71% of the company’s total revenue last year. Nearly 25% of the company’s revenue is from producing edible vegetable oils for cooking, baking, and industrial purposes. The rest of the business is milling, sugar and bioenergy. BG YTD mountain Bunge Global in 2024 Bunge competes with other major agribusinesses, such as Cargill, Archer-Daniels-Midland and Louis Dreyfus Company. These four companies are collectively known as the “ABCD” of global agribusiness. The industry landscape hasn’t been particularly favorable over the past few years. Bunge is down more than 20% this year and nearly 40% since its all-time high in April 2022. The company’s proposed acquisition of Dutch private agriculture products company Viterra, initially announced in June 2023 , was delayed. Assuming the companies receive the requisite government approvals, the acquisition would broaden Bunge’s footprint. The “Dogs” strategy attempts to take a contrarian position by identifying out-of-favor stocks, and Bunge certainly qualifies as out of favor. One reason? Crush margins. Crush margins refer to the profit margin that processors (or crushers) earn when converting raw soybeans (or other oilseeds) into their derivative products: soybean meal and soybean oil. They are a critical metric in the agricultural and commodity trading industries, as they measure the profitability of processing soybeans, and lately, they’ve been falling. In contrast to the challenging environment, the stock already reflects negative news. With forward earnings estimates at just 8.7 times, Bunge is valued at a 12% discount compared to its historical average. Presently, Bunge offers a projected 12-month dividend yield of 3.5%, and the company has a strong track record of consistently increasing its dividend. The options trade Uncertainty over fundamental drivers, such as falling crush margins, has also contributed to premiums for higher-than-average options. Thus, investors doing buy-writes or covered calls can enhance their dividend yield by selling some upside options premium. For example, the January 82.5 buy-write, where one would purchase the shares at about $79 and sell the 4.4% out-of-the-money upside call for $1, offers a standstill yield of nearly 1.3% (the standstill yield is the premium collected divided by the current stock price), while also offering more than 4% upside price appreciation potential. Dividends and buy-writes in agribusiness, fracking and real estate investment trusts may not be as exciting as buying calls in high-flying stocks like MicroStrategy and Palantir Technologies . Still, they serve another critical role: portfolio diversification. If — or perhaps more accurately, when — the highest-flying stocks suffer a correction, the income-producing constituents of your portfolio may provide some welcome stability. DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
