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4 Top-Ranked Stocks to Play the Boom in Fertilizers Space

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·6 min read
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The fertilizer industry is reaping the benefits of solid market fundamentals underpinned by strong global demand and prices of crop nutrients, which make it one of the hottest areas to invest in right now.

The underlying strength of the agricultural market, a surge in crop commodity prices and attractive farm economics are spurring demand for fertilizers globally. Demand for fertilizers is also backed by the need to grow the production of grains to address rising consumption. The constant need of farmers to nourish their crops, replenish nutrients in the soil following a harvest and boost yields support the bullish case for fertilizers. A tight global supply-demand balance is also driving fertilizer prices.

Stocks like Nutrien Ltd. NTR, CF Industries Holdings, Inc. CF, Intrepid Potash, Inc. IPI and Sociedad Quimica y Minera de Chile S.A. SQM are well poised to gain from the solid industry fundamentals.

Solid Crop Nutrient Demand and Pricing Dynamics

Strong global demand and tightened supply have led to a spurt in crop commodity prices. Prices of corn and soybean have rallied to multi-year highs. Higher agricultural commodity prices bode well for crop nutrient demand over the near term. Expectations of higher planted corn and soybean acres globally on the back of higher crop prices also suggest a pickup in fertilizer demand.

In the United States, solid farm profits and higher planted acreage are expected to drive demand for fertilizers. Strong farmer economics are also expected to support demand in major markets such as Brazil and India.

Farmer economics remain attractive in most global growing regions on strong crop demand. Notably, farm economics have strengthened in the United States on the back of a spike in crop commodity prices and government support. The U.S. Department of Agriculture expects net farm income to increase 23.2% year over year to $116.8 billion in 2021, the highest level since 2013. The upside is expected to be driven by higher cash receipts from the sale of agricultural commodities. Solid farm income backed by higher agricultural commodity prices will likely drive farmers’ spending on crop nutrients.

Meanwhile, strong grower economics and higher crop commodity prices are driving potash demand globally amid limited supply availability. Demand for nitrogen fertilizer also remains healthy globally. Higher economic activities have contributed to increased industrial consumption of nitrogen products. Global nitrogen requirement is being driven by demand in North America, India and Brazil. Higher planted corn acres in the United States are expected to drive nitrogen demand in North America this year. Demand for urea imports into Brazil and India also remains favorable.

Potash prices have also strengthened on the back of robust global demand and tight supply. Tight availability along with healthy demand is also driving phosphate prices globally. Higher demand and lower supply availability resulting from reduced operating rates across Europe and Asia due to higher energy prices also fueled rapid increases in nitrogen prices. The pricing momentum is expected to continue for the remainder of 2021 and into 2022, backed by the strength in crop markets and global supply constraints.

Solid Zacks Industry Rank

The Zacks Fertilizers industry currently carries a Zacks Industry Rank #7, which places it in the top 3% 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 34.6%, the S&P 500 has returned 28.5%.

Zacks Investment Research
Zacks Investment Research

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4 Stocks to Buy

The fertilizer industry is riding on the strength in the global agriculture markets. Factors like solid farm income, a rally in crop commodity prices and higher planted acres are expected to drive demand for fertilizers globally. As such, it would be prudent to add some fertilizer stocks that offer compelling growth prospects.

Below we have highlighted four stocks, each with a Zacks Rank #1 (Strong Buy), that are good options for investment right now. You can see the complete list of today’s Zacks #1 Rank stocks here.

Nutrien: Canada-based Nutrien is benefiting from solid demand and higher prices for crop nutrients on the back of strength in the global agriculture markets. Nutrien is also gaining from acquisitions, cost efficiency and increased adoption of its digital platform. The company also continues to expand its footprint in Brazil through acquisitions, including Tec Agro. These factors have contributed to its share price appreciation of around 44% over a year.

Nutrien has an expected earnings growth rate of 212.2% for the current year. The Zacks Consensus Estimate for current-year earnings of NTR has moved up 10.6% in the past 60 days.

CF Industries: Illinois-based CF Industries is gaining from higher nitrogen fertilizer demand in major markets. CF Industries is seeing higher nitrogen demand in North America for industrial uses. Higher nitrogen prices aided by strong global demand and lower global supply availability are also driving the company’s top line. CF also remains committed to boosting shareholders’ value by leveraging strong cash flows. These factors have resulted in a share price rally of roughly 54% over the past year.

CF Industries has an expected earnings growth rate of 121.1% for the current year. CF has a trailing four-quarter earnings surprise of roughly 97.8%, on average.

Intrepid Potash: Colorado-based Intrepid Potash is gaining from strong commodity prices and higher potash demand and pricing, which are supporting its sales and margins. A recovery in economic activities and the strength in commodity prices are driving demand for its specialty fertilizer, Trio. Higher realized sales prices for potash and Trio are driving IPI’s bottom line. Driven by these factors, the company’s shares have shot up around 162% over the past year.

Intrepid Potash has an expected earnings growth rate of 244.7% for the current year. The Zacks Consensus Estimate for earnings for the current year for IPI has been revised 3.3% upward over the past 60 days.

Sociedad Quimica: The Chile-based company is benefiting from being the low-cost producer of potassium chloride, potassium sulfate and potassium nitrate. Higher demand is also supporting sales volumes in Sociedad Quimica’s specialty plant nutrition business. Rising demand is also driving the prices of potassium chloride. These factors have contributed to its share price gain of 25% in a year’s time.

Sociedad Quimica has expected earnings growth of 90% for the current year. The consensus estimate for the current year has been revised 6.9% upward over the last 60 days. SQM also has an expected long-term earnings per share growth rate of 42%.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

CF Industries Holdings, Inc. (CF) : Free Stock Analysis Report

Sociedad Quimica y Minera S.A. (SQM) : Free Stock Analysis Report

Intrepid Potash, Inc (IPI) : Free Stock Analysis Report

Nutrien Ltd. (NTR) : Free Stock Analysis Report

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