4 'Must-Own' Fertilizer Stocks Poised For Gains In 2012

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 |  Includes: AGU, CF, MOS, POT
by: Hawkinvest

Fertilizer stocks have been under pressure in recent months and the weakness continued into January when the U.S. Department of Agriculture forecasted higher-than-expected soybean and corn supplies. A recent Reuters article sums up the potential for a rebound and states:

The drop for fertilizer stocks may be short-lived, Gulley said. "Everyone in the industry agrees with us that the volatility in (USDA) numbers is becoming a bit disturbing," he said, adding that he expects next month's USDA report to be bullish, given ongoing concerns about dry farming areas of South America.

The drop in some fertilizer stocks has been severe, but the long-term outlook is as bright as ever. The excess supplies of corn and soybeans are likely to be resolved in the coming quarters as many companies have already cut production in response to current market demand. Once these production cuts meet with more stable demand later this year, margins will improve and these stocks should continue to rebound. Furthermore, as global population growth continues to rise, and as emerging market consumers spend more on food as their incomes rise, this sector is likely to see additional demand. Fertilizers are a key component for food production and regardless of which European country has debt issues in 2012, people need to eat, and that adds some stability for these companies. Finally, many governments are printing money in order to solve debt issues and this could lead to inflation, which has historically benefited fertilizer companies. Here are a few top-tier fertilizer stocks that are poised to continue moving higher from recent lows:

Potash Corp. (NYSE:POT) mines and manufactures potash for use in fertilizer products. Potash management appears to be very bullish on the future: The company has a 500,000 tonne storage facility that is under construction in Saskatchewan, and it is expanding in other areas as well. The company also announced in January that it would double the dividend payment, going from 7 cents per quarter to 14 cents. This was the second dividend increase in the past year and it demonstrates that the company has a strong balance sheet and also shows management confidence. This stock was trading around $58 per share a few months ago, and it appears to have bottomed out. These reasonably priced shares are trending higher now and look like a buy on any pullbacks.

Here are some key points for POT:
Current share price: $46.69
The 52-week range is $38.42 to $63.97
Earnings estimates for 2011: $3.79 per share
Earnings estimates for 2012: $3.89 per share
Annual dividend: 28 cents per share, which yields .6%

The Mosaic Company (NYSE:MOS) is one of the world's largest producers of phosphate and potash. This company also sees stronger demand in the future and has expansion plans under way that will increase potash capacity by 2 million tonnes in 2013. Mosaic has been purchasing millions of shares, which is another positive for future earnings growth. The fourth quarter usually shows seasonal weakness and most fertilizer companies were impacted by excess supplies, so the recent dip in this stock is probably a short-term buying opportunity that will not last as global demand picks up in the coming months. This stock appears undervalued at just about 10 times forward earnings.

Here are some key points for MOS:
Current share price: $55.95
The 52-week range is $44.86 to $89.24
Earnings estimates for 2011: $4.31
Earnings estimates for 2012: $5.53
Annual dividend: 20 cents per share, which yields .4%

CF Industries Holdings Inc. (NYSE:CF) mines, manufactures and distributes nitrogen and phosphate fertilizers around the world. This company is also sending a number of bullish signs for long-term investors: The company expects a strong corn planting for the 2012 Spring season. The company bought back about $800 million worth of its own stock in the third quarter of 2011. Plus, it announced a record $1.4 billion in sales and $4.73 per share in quarterly profits. CF has a very strong balance sheet and with the stock trading at around 7 times earnings, it makes sense to start accumulating now.

Here are some key points for CF:
Current share price: $177.06
The 52-week range is $115.34 to $192.70
Earnings estimates for 2011: $22.48
Earnings estimates for 2012: $22.42
Annual dividend: $1.60 per share, which yields .9%

Agrium, Inc. (NYSE:AGU) manufactures, markets and distributes phosphate, nitrogen and potash for agricultural and industrial uses worldwide. This company is also a major distributor of seed, crop nutrient and protection products. Agrium has expanded through internal growth but also has been aggressive in making acquisitions. In the past 5 years, Agrium has acquired 13 companies. Agrium's crop protection unit is seeing strong growth and has the potential to keep growing at about 30% annually as food producers seek to increase crop yields. This stock has been one of the leaders in the fertilizer stock rebound, and could now be due for a short-term pullback before resuming the long-term uptrend. The stock appears to have strong support around $74, and that would be a better entry point.

Here are some key points for AGU:
Current share price: $80.26
The 52-week range is $60.15 to $99.14
Earnings estimates for 2011: $9.41
Earnings estimates for 2012: $9.03
Annual dividend: 45 cents per share, which yields .6%

Data sourced from Yahoo Finance. No guarantees or representations are made.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.