Mosaic, CF Industries: Fertilizer Stocks in a Bull Trend

Fertilizer producers and distributors are in a very real bull market trend at this time as one of the only industries to thrive in the current environment. Two of the companies in this sector hit new 52 week highs early last week: Mosaic (MOS) and CF Industries (CF). I am hesitant to put a large portion of a portfolio into one sector, as Bulk Shippers looked great for a period last year and then collapsed, but the fertilizer companies look too attractive at this time to not be a little overweight on them.

CF Industries had analysts upgrading their current year earnings per share from 8.66 to 11.47 in the past 90 days. That is a 32% increase in the estimates. The company has a trailing price/earnings ratio of 20.5 and year over year (yoy) quarterly EPS growth of 108.8%. Quarterly revenue on a yoy basis is also impressive at 61.9%.

Mosaic is a favorite of mine and although it doesn’t have the same big earnings estimate increases this year as CF Industries, it is still very attractive. Current year earnings estimates have increased from 3.67 to 3.95 in the last 90 days. Next year’s earnings estimates have increased from 5.77 to 9.35 in the same period. The second set of earning’s estimates are very impressive at a 62% increase while this year’s estimates have only increased 7.6%. Mosaic has quarterly (yoy) EPS growth of 270% and quarterly revenue growth (yoy) of 68%. With a trailing P/E of 38, the stock still has room to move higher.

Disclosure: Author holds positions in CF and MOS

Comments

[User 177467:]

both stocks are at the top, overbought and waiting for a coming correction. i assume, that the correction is gonna come this week, and MOS gonna touch $ 105 Dollar again, to go back up next week.

My advice, if invested, sell and buy cheaper; if not invested yet, wait till next week or even short the stock on monday at the top.

2008 Apr 13 09:17 AM

[Kobayashi Maru:]

It's a hungry and growing hungrier world. 2 billion people in China and India want to start eating more protien. 10 pounds of grain to make 1 pound of protein - the fert complex is at the beginning of a 3 - 5 year cycle and going north. Correction? HAH!!! The correction will be when forward PE's catch up to the huge growth.

2008 Apr 13 02:58 PM

[User 177467:]

i agree with you on the fundamentals and the long term outlook.

short term: you will see it this week, it will bounce back to the 50 day average back first, before making new highs at the end of april. the fridays market was weak already, and the trend will continue on monday. officially the recession is here.

nothing goes just straight up.

2008 Apr 13 04:06 PM

[Urbane Gori...:]

I agree with user 177467 **and** Mr. Maru.. The sector is looking like it had a nice run-up and is due for a short-term pullback. I'll be buying when it does for the longer run...

Thx jegan

2008 Apr 13 06:00 PM

[jonreagan:]

I don't know....on Friday, as the rest of the market got boot-stomped, MON, AGU, POT, and CF all actually went higher; MOS got hurt a little bit, but was still better than the rest of the market.

That's a fairly significant sign of strength; at the same time, news of food riots in other parts of the world is becoming commonplace. I knew a guy last year, who kept trying to short Monsanto, all the way from 70 to 125.....he usually had tears in his eyes when I saw him.

2008 Apr 13 07:50 PM

[retrader:]

Curiosity : Where do the two "Terras" stand in this Agriculural climb ?

2008 Apr 13 10:42 PM

[jonreagan:]

User 175171--very good question. TNH historically seems to fluctuate like crazy....but it's been stuck in a range around between 120-128 for a while now. This stock has always made me nervous, in that earnings info and other stats are hard to come by. Beyond that, I'm mostly an options trader, and they aren't available on TNH, so it's a moot point for me.
TRA is interesting, though I've never traded it. Seems to get mostly good coverage in IBD, and recent moves, like most of the sector, have been positive. But I've mostly stuck to AGU-MOS-POT, which seem to be more solid companies.

2008 Apr 14 01:33 AM

[Andrew Mickey:]

jonreagan, you are wise to stick to AGU, MOS, and POT. Those three are the only public potash producers in North America. CF produces no potash and is primarily a chemcial fertilizer maker and distributor like TNH, BG, and many others.

The key difference is CANPOTEX. It's a monoply controlling the world's potash production as well as the capex involved in bringing a new potash mine on line compared to nitrate and phosphate mines. Be very careful in these ag plays, but the safest spot to be in in the three monopoly-protected potash producers.

2008 Apr 14 10:18 PM

[thomas728:]

Well put Steve !!!!

And IMHO:

"Overweight" is the most mis-used term analysts could ever
use.

In it's proper context and used as one would classify a
plane, ship, or freight car "Overweight" is an onerous
classification and not those with the right sense of
balance would employ.

In defining one's holdings wouldn't you rather use the
shop worn but more desirable "well balanced in growth
and value" ?

And back to MOS etc., if one is to believe the need in
the U.S. (fill er up......ethanol please) and abroad especially
India,China etc. the citizenry has already begun to riot
over shortages in rice,bread,feed.......

Thus the head on need for potash in the soil is no longer speculative nor is it brief.

Yours truly,

Tom

2008 Apr 15 03:13 PM

[Steve Patte...:]

Big news today is going to cause these stocks to rally more, "Saskatchewan potash producers more than doubled the price of fertilizer exports to China." There might be pullbacks but these stocks should mostly all do very well this year.

2008 Apr 16 11:29 AM