4 top-ranked stocks to play the boom in the fertilizer space
The fertilizer industry is reaping the benefits of strong market fundamentals supported by strong global demand and prices for crop nutrients, which make it one of the hottest areas to invest in right now.
The underlying strength of the agricultural market, soaring agricultural commodity prices and an attractive agricultural economy are driving the demand for fertilizers globally. The demand for fertilizer is also supported by the need to increase cereal production to cope with the increase in consumption. The constant need of farmers to feed their crops, replenish soil nutrients after a harvest, and increase yields supports the bullish case for fertilizers. A tight global supply-demand balance also affects fertilizer prices.
Actions like Nutrien Ltd. RNT, CF Industries Holdings, Inc. FC, Intrepid Potash, Inc. IPI and Sociedad Quimica y Minera de Chile SA SQM is well positioned to benefit from strong industry fundamentals.
Demand for solid nutrients for crops and price dynamics
Strong global demand and tight supply have caused agricultural commodity prices to skyrocket. Corn and soybean prices hit multi-year highs. Rising prices for agricultural products bode well for the demand for nutrients for crops in the short term. Expectations of an increase in the area under maize and soybean crops globally due to higher crop prices also suggest a recovery in demand for fertilizers.
In the United States, strong farm profits and more planted area are expected to boost demand for fertilizer. A strong agricultural economy is also expected to support demand in major markets such as Brazil and India.
The farmer economy remains attractive in most of the world’s growth regions due to strong demand for crops. Notably, the agricultural economy in the United States has strengthened thanks to soaring prices for agricultural products and government support. The US Department of Agriculture expects net farm income to increase 23.2 percent year-on-year to $ 116.8 billion in 2021, the highest level since 2013. The increase is expected to be pulled. through higher cash receipts from the sale of agricultural products. Strong farm income supported by higher prices for agricultural commodities will likely drive farmers’ spending on crop nutrients.
Meanwhile, a strong producer economy and rising agricultural commodity prices are boosting global demand for potash amid limited availability. Demand for nitrogen fertilizers also remains healthy globally. The intensification of economic activities has contributed to the increase in industrial consumption of nitrogenous products. Global nitrogen requirements are determined by demand in North America, India and Brazil. The increase in the area under corn in the United States is expected to boost nitrogen demand in North America this year. Demand for urea imports in Brazil and India also remains favorable.
Potash prices also strengthened due to strong global demand and tight supply. Limited availability and healthy demand are also pushing up phosphate prices globally. Higher demand and lower availability of supply resulting from reduced exploitation rates in Europe and Asia due to higher energy prices have also fueled rapid increases in nitrogen prices. Price dynamics are expected to continue for the remainder of 2021 and into 2022, supported by strong crop markets and global supply constraints.
Zacks’ strong industry rank
The Zacks Fertilizer Industry is currently ranked 7th in the Zacks Industry, which places it in the top 3% of over 250 Zacks industries. The favorable ranking reflects the strength of the industry. Our research shows that the top 50% of industries ranked by Zacks outperform the bottom 50% by a factor of more than 2 to 1.
The Zacks fertilizer industry outperformed the market at large within a year. While the industry rose 34.6%, the S&P 500 returned 28.5%.
Image source: Zacks Investment Research
4 shares to buy
The fertilizer industry benefits from the strength of global agricultural markets. Factors such as strong farm incomes, rising commodity prices and increased acreage are expected to drive demand for fertilizer globally. As such, it would be prudent to add fertilizer stocks that offer attractive growth prospects.
Below we’ve highlighted four stocks, each with a Zacks Rank # 1 (strong buy), which are good options for investing right now. You can see The full list of today’s Zacks # 1 Rank stocks here.
Nutrient: Canadian company Nutrien is benefiting from strong demand and higher prices for crop nutrients thanks to strong global agricultural markets. Nutrien is also benefiting from the acquisitions, profitability and increased adoption of its digital platform. The company also continues to expand its presence in Brazil through acquisitions, including Tec Agro. These factors contributed to its share price appreciation of around 44% year-on-year.
Nutrien has an expected profit growth rate of 212.2% for the current year. Zacks’ consensus estimate for NTR’s current year earnings has risen 10.6% in the past 60 days.
CF Industries: Illinois-based CF Industries is benefiting from increased demand for nitrogen fertilizers in key markets. CF Industries is seeing an increase in demand for nitrogen in North America for industrial purposes. Higher nitrogen prices, aided by strong global demand and lower global availability of supply, are also boosting the company’s revenue. CF also remains committed to increasing shareholder value by building on strong cash flow. These factors have caused the stock price to rise by approximately 54% over the past year.
CF Industries has an expected earnings growth rate of 121.1% for the current year. CF has a surprise earnings for the past four quarters of about 97.8%, on average.
Intrepid Potash: Colorado-based Intrepid Potash is benefiting from high commodity prices and rising potash demand and prices, which are supporting its sales and margins. The resumption of economic activity and strong commodity prices are driving demand for its Trio specialty fertilizer. The higher selling prices realized for Potash and the Trio influence IPI’s results. Driven by these factors, the company’s shares have climbed around 162% in the past year.
Intrepid Potash has an expected earnings growth rate of 244.7% for the current year. Zacks’ consensus estimate for current year earnings for the IPI has been revised up 3.3% over the past 60 days.
Sociedad Quimica: The Chilean company profits from being the low cost producer of potassium chloride, potassium sulphate and potassium nitrate. Higher demand is also supporting sales volumes in Sociedad Quimica’s specialty plant nutrition business. Growing demand is also pushing up the prices of potassium chloride. These factors contributed to the increase in its share price by 25% in one year.
Sociedad Quimica expects earnings growth of 90% for the current year. The consensus estimate for the current year has been revised up 6.9% over the past 60 days. SQM also has an expected long-term earnings per share growth rate of 42%.
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