The first quarter of the 2024 earnings season has kicked off. While markets focus primarily on financial stocks to lead the way into the new year, others focus on more immediate opportunities based on economic trends that have already started to take on water. Shares of FMC Co. (NYSE: FMC) could become one of these targets for those looking to have a good quarter. 

Though the stock’s performance over the past year hasn’t been stellar, the rearview mirror only tells half the story. Those at The Goldman Sachs Group Inc. (NYSE: GS) are leaning on the road ahead, which could now be filled with all the right factors for investors. 

Tied to a global economic trend in the agricultural sector, which all evidence points to a breakout, companies like C.F. Industries Holdings Inc. (NYSE: C.F.) and LyondellBasell Industries (NYSE: LYB) play a significant role in the sector’s turnaround. However, FMC stock provides the characteristics that Wall Street looks for in this cycle. 

Different Post-Pandemic Economy

[content-module:CompanyOverview|NYSE: FMC]The U.S. economy is divided into two diverging sectors for the first time since the COVID-19 pandemic in 2020. On the one hand, the services sector, according to trends in the ISM services PMI index, has been solely responsible for pushing the economy forward. 

On the other hand, the manufacturing sector had contracted for nearly a year and a half until last month. The manufacturing PMI index shows the industry's first expansionary reading, driving attention to potential stocks that could follow this turnaround behavior.

Before knowing which stocks to pick, investors need to identify the right sectors. Based on services and manufacturing surveys, the agricultural sector is driving most of the turnaround forces, all due to one global trend. 

CF Industries set the pace in its fourth quarter 2023 earnings presentation, showing investors that stock-to-use ratios have recently reached a cyclical bottom. This means rising food demand with too little supply. Hence, farmers need to get going before these dynamics drive inflation higher. 

Now, an agricultural breakout in the U.S. can only happen with the right components, including seed and crop protection chemicals (where FMC and CF come into play), as well as the proper irrigation and greenhouse film infrastructure (better called LyondellBasell)

FMC Remains a Top Pick

Among these three, FMC earned the love of the markets. Analysts at Goldman Sachs boosted their price targets on the stock up to $59 a share, roughly where the stock trades today. Being conservative is one of Goldman’s characteristics, so here are other views.

The UBS Group (NYSE: UBS) and KeyCorp (NYSE: KEY) analysts felt more comfortable showing the actual value in FMC, which is stipulated at an approximate valuation of $84 and $79. To prove these two banks right, the stock would need to rally by as much as 41% from today’s prices. 

While Goldman’s view is an excellent addition, it isn’t the whole cake. Earnings per share (EPS) projections show investors why FMC fits the turnaround narrative in the manufacturing sector, going from a decline of 14.6% in the past 12 months to an expected 25% advance this year fits the script. 

Compared to the chemicals sector, FMC’s 5.6x P/E valuation gives investors a 56% discount to the industry’s 12.7x multiple. FMC looks like the better deal compared to LyondellBasell’s expected 13.6% EPS growth and more expensive 15.5x P/E.

Honing in on CF’s chemicals, which do compete against FMC’s, analysts still see only 1% EPS growth for that stock. Despite having the lowest projected increase in the group, the stock is still twice as expensive as FMC, as it trades at a P/E valuation of 10.3x. 

Over the past 12 months, FMC underperformed LyondellBasell and CF by 62%. However, zooming into the past 6 months, FMC outperformed CF by 5%. LyondellBasell remains the leader in price action, though FMC’s discount remains the most attractive.

Trading at 48% of its 52-week high and remaining the undervalued stock in P/E terms, FMC’s EPS growth and price targets today could make it a top choice to play the turnaround in agricultural demand in the U.S.