4 Fertilizer Stocks to Scoop Up on Demand and Price Upswing
The fertilizer industry is on a solid footing, courtesy of strong pricing and demand dynamics for major crop nutrients. The underlying strength of the agricultural market, higher crop commodity prices and healthy farm economics are driving demand for fertilizers globally.
While the coronavirus pandemic put a crimp on a wide gamut of industries, agriculture was left relatively unscathed given the sustained increase in demand for food worldwide. Global demand for fertilizers is also backed by the need to grow the production of grains to address rising consumption. Moreover, the constant need of farmers to nourish their crops, replenish nutrients in the soil following a harvest and boost yields to feed a growing population support the bullish case for fertilizers.
Demand for fertilizers in the United States is expected to be driven this year by solid farm profits and higher planted acreage. Strong farmer economics are also likely to support demand in major markets such as Brazil and India.
Notably, phosphate markets are likely to remain robust in the near term on solid demand and pricing dynamics. Tight availability along with firm demand is driving up phosphate prices globally. Potash prices have also strengthened on the back of robust global demand, aided by strong grower economics, higher crop prices and low global inventory levels. Demand for nitrogen fertilizer also remains healthy in major markets. Global nitrogen requirement is being driven by demand in North America, India and Brazil. Healthy corn acres in the United States are expected to spruce up nitrogen demand in North America. Moreover, demand for urea imports into Brazil and India remains favorable. Lower global supply availability and a spike in energy prices are also likely to boost nitrogen prices.
Moreover, strong global demand coupled with supply constraints have provided a boost to crop commodity prices. Notably, prices of corn and soybean have rallied to multi-year highs. Higher agricultural commodity prices augur well for crop nutrient demand. Expectations of higher planted corn and soybean acres globally this year on the back of higher crop prices also suggest a pickup in fertilizer demand.
Meanwhile, farm economics have strengthened in the United States on the back of a rally in crop commodity prices and government support. According to the U.S. Department of Agriculture’s (“USDA”) latest outlook, net farm income is projected to be $111.4 billion in 2021. Although net farm income is forecast to dip 8.1% from the 2020 level due to lower federal payments to farmers, it would still be 21% higher than its 2000-19 average, based on USDA projections. Notably, farm profits zoomed to their highest level in seven years in 2020 on the back of record levels of federal payments to growers in the wake of the pandemic. Despite the expected year-over-year decline, solid farm income backed by higher agricultural commodity prices is likely to incentivize farmers to spend on crop nutrients this year.
Favorable Zacks Industry Rank
The Zacks Fertilizers industry currently carries a Zacks Industry Rank #24, which places it in the top 9% of more than 250 Zacks industries. The favorable rank reflects the industry’s strength. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Price Performance
The Zacks Fertilizers industry has outperformed the broader market in a year’s time. While the industry has rallied 143%, the S&P 500 has returned 67.6%.
4 Stocks Worth a Wager
The companies in the fertilizers space are well poised to benefit from solid industry fundamentals underpinned by strong global demand and prices for crop nutrients. As such, the time is ripe for the investors to add some fertilizer stocks that offer significant growth prospects.
Below we highlight four stocks, with a solid Zacks rank, that are good options for investment right now. Our research shows that stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer good investment opportunities.
You can see the complete list of today’s Zacks #1 Rank stocks here.
The Mosaic Company MOS: The Florida-based company sports a Zacks Rank #1. It is well positioned to leverage increasing global demand for fertilizers and higher realized prices in its businesses. It is also taking measures to cut costs amid a still-challenging operating environment. Its actions to improve its operating cost structure through transformation plans are expected to boost profitability. Transformational savings are also expected to drive margins in its Mosaic Fertilizantes segment.
Mosaic has expected earnings growth of 177.7% for the current year. The Zacks Consensus Estimate for current-year earnings for the company has moved up 63.9% in the past 60 days. The company’s shares have also surged around 78% over the past six months.
Yara International ASA YARIY: The Norway-based company has a Zacks Rank #2. It should benefit from the strength in the nitrogen fertilizer market. Rising nitrogen prices are expected to lend support to its margins. Yara should also gain from a recovery in its industrial business on the back of a rebound in demand.
The company has expected earnings growth of 26% for the current year. The consensus estimate for earnings for the current year has been revised 17.6% upward over the last 60 days. The stock has also gained roughly 30% over the over the past six months.
Sociedad Quimica y Minera de Chile S.A. SQM: The Chile-based company carries a Zacks Rank #2. The company should benefit from being the low-cost producer of potassium chloride, potassium sulfate and potassium nitrate. Moreover, higher demand is expected to boost sales volumes in its specialty plant nutrition business this year. Rising demand is also expected to drive prices of potassium chloride.
The company has expected earnings growth of 23.3% for the current year. The consensus estimate for the current year has been revised 8.8% upward over the last 60 days. The stock has also rallied around 66% in the past six months.
The Scotts Miracle-Gro Company SMG: This Marysville, OH-based company carries a Zacks Rank #2. The company is likely to gain from strong retailer support in its U.S. Consumer segment and continued strong momentum in the Hawthorne division. Moreover, it will benefit from the synergies of the Sunlight Supply acquisition. The buyout creates unique competitive advantages for the Hawthorne division.
Scotts Miracle-Gro has expected earnings growth of 22.1% for the current fiscal. The Zacks Consensus Estimate for earnings for the current fiscal has been revised 7.2% upward over the last 60 days. The stock has also gained roughly 51% over the over the past six months.
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Yara International ASA (YARIY) : Free Stock Analysis Report
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