Fertilizer Companies Are Crushing It
Dec 22nd 2011 2:02PM
Updated Dec 22nd 2011 2:28PM
The fertilizer industry is full of life now. I can't think of a single company that failed to impress us with its last-quarter numbers. Then doesn't the fertilizer space look like a safe haven for your money? I think so.
Let me give you the lowdown on what's driving the industry and how the major players are faring, to help you add some nutrients to your portfolio.
Farmers across the globe are growing more and more these days. What's fueling all the action? Rising crop prices. This in turn fuels demand for fertilizers and nutrients, making for busier times for fertilizer companies.
A lot of this can be attributed to the emerging markets, which are demanding more food with their growing population. This can be gauged from some recent developments such as India's agreement to import nutrients like potash at high prices. China and Latin America are also contributing to the rising demand for nutrients. What particularly stands out here is China's recent purchase of huge amounts of American corn.
Nothing corny about it
When we talk about fertilizers, corn requires special mention as it is one of those crops that require a lot of nutrients. A strong market for corn thus directly translates into higher need for fertilizers.
China's big corn purchase has raised optimism all around. Fertilizer giant CF Industries is projecting near-record corn crops next spring, which certainly hints at good days ahead.
But what to make of the USDA's recent report of high corn stockpiles? Well, if corn supply goes up and prices fall, wouldn't lower prices trigger demand for the essential corn and again push up its prices? It's a cycle that's possible, which should bode well for fertilizer companies.
Now that you have a good idea of what's keeping the fertilizer industry happy, let's see which companies could be worth the money.
Some great plays
Terra Nitrogen (NYS: TNH) stands out primarily because of its mind-blowing 10.10% dividend yield, which even looks sustainable. As for performance, Terra's third-quarter bottom line got heavier by a whopping 265% as high nitrogen prices pushed up its net sales to $203.3 million from $136.0 million a year ago. This one's a hot stock for sure!
How could I leave out the potash king Potash Corp (NYS: POT) ? With the emerging markets scrambling for nutrients, the company's third-quarter revenue shot up 47% from the year-ago period to $2.3 billion, more than doubling its bottom line.
As the world's largest fertilizer producer, and the biggest owner of the three-member legal cartel that controls all potash exports out of Saskatchewan, this one's a must-watch.
Speaking of potash, Mosaic (NYS: MOS) is another company that is expanding its potash capacity. Mosaic's first-quarter revenues zoomed to $3.1 billion, up 41% from a year ago, taking its bottom line up by a staggering 77% to $526 million. I also wrote about its clean financials and attractive valuation recently. The reasons join well to form a perfect mosaic, indeed.
Two interesting ones...
One interesting company is Sociedad Quimica y Minera (NYSE: SQM), which is also expanding its fertilizer capacity. Higher nutrient demand and prices boosted its third-quarter revenues by 25% to $574.7 million and net profit by 51% to $143.2 million.
The interesting part? You have the great lithium advantage attached with Sociedad. Go for it, Fools!
Even the new kid on the block, CVR Partners (NYS: UAN) , is making sure it stays in the race. As prices rose, its third-quarter top line grew an astounding 66.4% from a year ago to $77.2 million, taking its net income up to $36.3 million from $13.5 million last year. CVR is now expanding its plant capacity to make sure it doesn't miss out on any opportunity. You shouldn't miss it either.
Anti-Chinese? No more!
If you get a lump in your throat at the very mention of Chinese companies, think again. Some fertilizer players that have been beaten black-and-blue by the "anti-Chinese" short-sellers are actually great performers.
Take China Green Agriculture (NYS: CGA) . Its first-quarter revenues shot up 34.5% from the year-ago quarter to $53.1 million as its fertilizers found more buyers. This also boosted its bottom line by 37.8% to $10.7 million.
Same goes for peer Yongye International (NAS: YONG) . Its aggressive marketing moves are paying off, evident from a whopping 95.9% jump in its third-quarter revenue from the year-ago period to $140.6 million. This more than doubled its net income to $39.1 million.
Both these companies are expanding their products' base and reach. Having a foothold in a nation where agriculture is emerging as one of the most important sectors is a boon for them.
The Foolish bottom line
After reading so much about the great days the fertilizer industry is seeing (and which are likely to continue), I definitely feel these companies are worth a watch.
I'll keep adding to your knowledge by following up with detailed analysis on each of these companies and more. To make sure you don't miss out any, just add these stocks to your free stock watchlist by clicking below.
At the time this article was published Neha Chamaria does not own shares of any of the companies mentioned in this article. The Motley Fool owns shares of Yongye International. Motley Fool newsletter services have recommended buying shares of Yongye International, Sociedad Quimica y Minera, and China Green Agriculture. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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