4 Cheap Fertilizer Stocks - Investment Ideas
December 09 2012 - 7:00PM
Zacks
In the winter months in the northern hemisphere it's easy to forget
about the agriculture sector because everything goes dormant. But
the companies that provide the farmers with fertilizer know the
cycles and see world demand still continuing to grow in 2013.
Case in point is Yara International's continued
expansion in Brazil. On Dec 7, the Norwegian-based fertilizer giant
announced it was acquiring Bunge's fertilizer assets in Brazil,
including its brands, warehouses and 22 blending facilities, for
$750 million in cash.
Bunge is keeping its fertilizer terminal and
entered into an agreement with Yara to continue to supply it with
fertilizer. The deal is expected to significantly boost Yara's
fertilizer production in Brazil over the next several years.
It's expected to close in the second half of
2013.
This deal is a sign of things to come as the
fertilizer companies expand into South America's agriculture
market. But North America continues to be a strong market as
well.
Investors Are Ignoring Agriculture
The agriculture sector, including the fertilizers,
seems to be out of favor with investors. It doesn't have the buzz
it did several years ago as potash prices soared and the companies
were big growth stories.
While growth has certainly slowed as potash and
phosphate prices have weakened, the nitrogen side of the equation
still has pricing power. That is boosting the nitrogen fertilizer
producers.
Investors, however, are staying away from both the
potash AND the nitrogen fertilizer stocks. Yet both have a rosy
outlook.
4 Cheap Fertilizer Stocks
The fertilizer stocks are out of favor with
investors. That has created an opportunity for value investors.
These four fertilizer companies are trading well below the average
of the S&P 500.
- Agrium: Forward P/E of 10.4
- CF Industries Holdings: Forward P/E of 7.7
- Mosaic: Forward P/E of 11.9
- Yara International: Forward P/E of 7.8
- S&P 500 Average: P/E = 14
But earnings growth is going to be hard to come by
for some in 2013. Farmers had record income in 2012 but the drought
threw a wrench in what would have been one of the best years ever
for agriculture. However, agriculture analysts still expect farming
income to be close to record highs again in 2013.
They should still be spending on fertilizer and
farm equipment but it's going to be difficult for companies to top
2012 EPS.
- Agrium: EPS growth of 4.5% in 2013
- CF Industries: EPS growth expected to decline 6% in 2013
- Mosaic: EPS growth of 11% in Fiscal 2014
- Yara: EPS growth expected to decline 7.5% in 2013
Each Company Has Its Niche
Not all of the fertilizer companies are the same.
Some are exclusively fertilizers and others are not. But all 4 of
these companies have Zacks Ranks of #1, #2 or #3.
- Agrium (AGU) is a Zacks #3 Rank (Hold). It is the most
complete agriculture company of the four. It makes all three major
fertilizers including nitrogen, phosphates and potash, but it also
has an agribusiness side where it sells seeds and crop protection
directly to farmers. Agrium is headquartered in Calgary and yields
a 1% dividend.
- Illinois-based CF Industries Holdings (CF) is a Zacks #2
Rank (Buy). The company is the second largest nitrogen fertilizer
maker in the world and the third largest phosphate manufacturer. It
pays a dividend yielding 0.8%.
- Mosaic (MOS) is a Zacks #3 Rank (Hold). It is on the
potash side, producing potash and phosphate. In its guidance update
on Nov 13, the company said it still expects record global
phosphate and potash shipments in 2013. It has the highest dividend
yield of these four at 1.9%.
- Yara International (YARIY) is a Zacks #1 Rank (Strong
Buy). Based in Norway, it is a global company with customers in 150
countries. It is also the world's largest producer of ammonia,
nitrate and complex fertilizer. It has about 20% of the global
ammonia trade.
Don't Count Out Agriculture
While the financial media is obsessing over the big
tech names or the financials, do your homework. For value
investors, it's a great time to be in agriculture, especially the
fertilizers. In the emerging markets, one of the largest business
opportunities in the next decade will be feeding the expanding
middle class, with its emphasis on beef and fast food.
Look outside the box at the fertilizer
companies.
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[In full disclosure, the author of this article owns
CF.]
Tracey Ryniec is the Value Stock Strategist for
Zacks.com. She is also the Editor of the Turnaround Trader and
Value Investor services. You can follow her on twitter at
@TraceyRyniec.
AGRIUM INC (AGU): Free Stock Analysis Report
AGRIUM INC (AGU): Free Stock Analysis Report
CF INDUS HLDGS (CF): Free Stock Analysis Report
CF INDUS HLDGS (CF): Free Stock Analysis Report
MOSAIC CO/THE (MOS): Free Stock Analysis Report
MOSAIC CO/THE (MOS): Free Stock Analysis Report
(YARIY): ETF Research Reports
(YARIY): ETF Research Reports
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