Fertilizer Companies Are Crushing It

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 calling
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
(NYSE: 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 (NYSE: 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 (NYSE: 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 (NYSE: 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 (NYSE: 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 (Nasdaq: 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.

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.


Read/Post Comments (8) | Recommend This Article (26)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 22, 2011, at 2:38 PM, bjasleep wrote:

    While I agree that fertilizer is a good place to be considering the long term, I think CGA and YONG, despite their being named best buys by TMF umpteen number of times, will be continue to be duds.

  • Report this Comment On December 22, 2011, at 5:03 PM, InvestWhatWorks wrote:

    I agree with that, bjasleep. Stay away from the China-based stocks (not just in this sector, but Chinese stocks in any sector). I'll stick with good American and Canadian companies like Mosaic (NYSE: MOS) and Potash Corp (NYSE: POT). Investing in Chinese stocks (particularly Chinese reverse-merger stocks) is just too risky.

  • Report this Comment On December 22, 2011, at 5:26 PM, wolfhounds wrote:

    I'm still surprised that any TMF writer would recommend Chinese stocks. In addition to the abundant lack of transparency, the government has time and again imposed it's rule on any industry without the need of law. With so many quality fertilizer stocks to invest in, why take a chance on stocks the market is giving clear signals on.

  • Report this Comment On December 22, 2011, at 7:28 PM, buffalonate wrote:

    I find it hilarious that the Fool keeps pumping YONG and CGA. Their growth is out of this world and their p/e ratios are tiny. This is either the deal of a lifetime or a fraud. If anybody believed the numbers this company would have been bought out by now by somebody.

  • Report this Comment On December 22, 2011, at 9:23 PM, mitcjam95 wrote:

    Morgan Stanley has a board member who is on YONG's board,MS also invested $50 Million in the stock (albeit perferred shares) but better yet they spent over $1 Million doing due dilgence on Yong.....think what you want, but in the long-run YONG will be a steal of a lifetime and the shorts will get crushed. If you don't believe it that logic, also be aware that Morgan Stanley also bought $3 Million more in the open market at much higher prices than it's current price and the CEO also invested $1 Million in the open market in Yong. How's that for putting money where your mouth is. Yong is audited by a big 4 auditor and has been heavily scrutinized for over a year by shorts and yet no credible facts have came out that show this is any type of fraud. Warren Buffet quote "Be fearful when others are greedy, be greedy when others are fearful". The fear in China makes me a very greedy person - especially for YONG!

  • Report this Comment On December 22, 2011, at 9:43 PM, devoish wrote:

    Neha,

    I think you under estimate the risks from global warming. Farmers do not fertilise flodded or drought stricken crops. There is overcapacity in the fertiliser industry, and the farmers in texas did not fertilise last season. The bags are still in the barn.

    Best wishes,

    Steven

  • Report this Comment On December 23, 2011, at 2:55 PM, bjasleep wrote:

    @mitcjam95: do you think John Paulson invested gobs of money in Sino-Forest without any DD only to see it all vaporize? All TMF pumps on china names (CGA, YONG, CCSC, JOBS,...) are substantially underwater and the odds are definitely against us.

  • Report this Comment On December 27, 2011, at 9:44 PM, DomingoMac wrote:

    "...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."

    That is just bad economics and a ridiculous statement. An increase in supply does not "push up" prices.

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