Unearth the Fertilizer Company That’s More Profitable Than Apple

There is nothing glamorous about fertilizer. Yet this year PotashCorp (NYSE: POT  ) , the world's largest supplier of potash, a vital crop-nourishing mineral, boasts better profits and faster earnings growth than high-tech darling Apple. As global agricultural demographics trend toward greatly expanding PotashCorp's customer base, here's why Foolish investors should expect the company to keep harvesting a bumper crop of great performance.

PotashCorp's share price has been weak this year (down almost 7%) for the same reason that it has such a strong future: It sells a great deal of potash, phosphate, and nitrogen to China, India, and other emerging market nations. As the economies in these countries slump, they demand less of the potash and other nutrients that crops need to grow.

Even with slowing economic growth in China and India, however, PotashCorp products still enjoy robust demand in other areas. In North America, the company enjoyed record sales volume for the third quarter of 2012. Demand in Brazil, which imports 90% of its potash, is expected rise again. China, the world's largest consumer of potash, should need even more to increase its grain production. Southeast Asia is proving to be a growth market for chemicals used in farming, too. 

Billions more customers
The overall growth of the global middle class will continue, resulting in the need for more agricultural goods and services. "Over the next 15 years, another 1.8 billion people will enter the global consuming class and worldwide consumption will nearly double to $64 trillion," discloses a recent McKinsey & Co. report. As consumers move up the socioeconomic ladder, they will adopt a richer diet that requires more fertilizer products to grow larger grain crops for feedstock that will end up as beef, pork, and chicken.

With almost 2 billion people moving to a higher standard of living and a more affluent diet, this burgeoning consumer class has reduced global grain stocks to a 25-year low. The chart below shows how that demand has increased sales growth and EPS for PotashCorp since the Great Recession:

POT EPS Basic Quarterly Chart

POT EPS Basic Quarterly data by YCharts

In a recent speech, PotashCorp President and CEO Bill Doyle stated that China and India's demand for fertilizer and other chemicals will likely increase again in 2013, as growing populaces with evolving diets demand more grain production. That is bullish for the chemical segment of the agricultural sector. If China and India are buying again, chemical companies selling fertilizers, pesticides, and other items needed for crop production, such as Dow Chemical (NYSE: DOW  ) , Monsanto (NYSE: MON  ) , Mosiac (NYSE: MOS  ) , and Agrium (NYSE: AGU  ) , should prosper along with PotashCorp.

As the chart below shows, PotashCorp posts the fattest profit margins in this particular sector, with one of the strongest EPS growth rates for this year. Even as demand from China and India has fallen, PotashCorp's EPS get a boost from operations in the Americas, Jordan and Israel, and among other regions.

Metric

PotashCorp

Mosiac

Agrium

Monsanto

Dow Chemical

Profit Margin

28.70%

17.40%

8.10%

15.50%

3.40%

EPS Growth Rate *

80.40%

(21.465)

106.03%

27.56%

18.91%

5-Year EPS Growth

16.44%

36.31%

20.49%

3.99%

(9.89%)

5-year Sales Growth

7.63%

13.98%

23.34%

6.75%

1.71%

Source: Motley Fool CAPS and finviz. * Rate for this past year.

Dividend makes the wait worthwhile
Foolish investors should monitor economic growth in China and India, which will be critical for any rebound in PotashCorp's stock price. When China and India's demand for fertilizers and agricultural chemicals increases, so should PotashCorp's share price. Until that happens, the company's 2.16% dividend yield pays you to wait.

PotashCorp is definitely a stock to consider for the new world of agriculture investing; it has an amazing profit margin and the dividend yield is nice, too. There is also a new world of industry arising, which is addressed in the Fool's report, "3 Stocks to Own for the New Industrial Revolution." They're the biggest industry disruptors we've seen since the personal computer, and you can read more about them in our free analyst report. Click here to learn more.


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