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Fertilizer Stocks Ready to Heat Up

|Includes:ALEX, CF, IPI, KNX, LUV, MOS, Navios Maritime Holdings Inc. (NM), POT

Fertilizer stocks look primed for a breakout, and today we look to the charts to find buy levels for a pair of industry leaders and identify an entry point in another stock with solid growth potential.

We saw impressive gains in all of the major US stock market averages last week, but the percentage moves were not that impressive when compared to the 11% gain that May corn had the last two days of the week. The sharp demand for corn and the overall agricultural boom does seem like a trend that has long-term potential.

Even though the major averages have made new highs for the year, the fertilizer companies have lagged. One unloved fertilizer stock appears to have completed a weekly bottom formation and has significant upside potential. 

In last month’s article, 3 Fertilizer Stocks with Growth Potential, I evaluated Potash Corporation of Saskatchewan (POT), The Mosaic Company (MOS) and CF Industries Holdings (CF). My long recommendation for CF is working out well, but now is the time to adjust the buy levels for POT and MOS, and Intrepid Potash (IPI) is now being added to my list.

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Chart Analysis: Intrepid Potash (NYSE:IPI) convincingly overcame two-year resistance at $34.23 (line a) in late December and reached a high of $40.22 in February. The decline in March did briefly violate the 38.2% support at $32.20.

  • The March low at $31.70 is the key support level with the major 50% support considerably lower at $29.65
  • IPI still has a gap overhead on the daily chart between $35.29 and $35.43 that should be filled this week. There is additional chart and retracement resistance in the $36-$37 area
  • Once above the February highs, the major 50% resistance at $45.20 is the next major target
  • The weekly on-balance volume (OBV) has moved back above its weighted moving average (WMA) and the daily OBV has surged to the upside

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The Mosaic Company (NYSE:MOS) has important support now in the $73-$74 area after it made a high last week of $82.40.

  • There is initial support now at $78.50-$79 with stronger support at $76.50-$77
  • The weekly OBV is leading prices higher as it made new highs in February and the daily OBV is also in a positive uptrend
  • A daily close above $86.70 would complete the trading range and give upside targets in the $105-$108 area

CF Industries Holdings (NYSE:CF), after declining from the February highs at $153.80, completed a double bottom formation in the $120 area. The move back above $133 completed that bottom formation.

  • On a move above $143, CF should be ready to challenge the recent highs at $153.80 with the all-time highs at $168-$173
  • The weekly OBV (not shown) has already moved above the February 2011 highs, while the daily OBV moved back above its weighted moving average last Monday
  • There is initial support now at $133 with much stronger support in the $125-$128 area

What It Means: The demand picture for the agricultural commodities continues be very strong and the technical picture shows no signs yet that the rally is over. The S&P 500 Fertilizer & Agricultural Chemical Index was up 3.7% last week and could close above the major weekly uptrend this week. This suggests that the fertilizer stocks may be ready to catch up with the rest of the market.

How to Profit: Only CF dropped back to test its major support after the last article as my recommended buy zone at $122-$123.58 was hit the following day when the low was $120.01. Buyers should have already sold half their positions at $138.77 for a 15.2% gain. Use a stop now at $125.44.

POT only got as low as $54.36, missing the buy level at $53.56. Would go 50% long at $57.45-$58.25 with a stop at $54.18 (risk of approx. 7%). On a move above $62.40, raise the stop to $57.22.

I would buy MOS at $77.90-$78.88 with a stop at $74.89 (risk of approx. 5.1%) and sell half the position at $85.37.
 

Portfolio Update

The Dow Transportation Average surpassed the February highs last week and the outlook for many of the stocks I previously recommended has changed. Therefore, I have updated my recommendations from the original article, Transports’ Season to Shine: 6 Picks.

Alexander & Baldwin Inc. (ALEX) had one of the better set-ups at the time of the original article, but the stock only traded as low as $41.46 after the report was released, never reaching my buy level at $41.14. On Friday, it gapped higher on news that a private equity firm had taken a stake, closing at $54.47.

Southwest Airlines (LUV), in pre-opening trading on Monday, is down 4.7% to $12.07, but I think a further decline would be a buying opportunity. Since the original order was not filled, I would change it as follows: Go long LUV at $11.92 or better with a stop at $11.29 (risk of approx. 5.3%).  Sell half the position at $13.36 and raise the stop on the remaining position to breakeven.

Navios Maritime Holdings Inc. (NM) traded as low as $5.52 after the initial article was released, getting close to my buy level at $5.48. It broke out to the upside on Friday. Would now go 50% long at $5.77 and add another 50% at $5.63 or better with a stop at $5.27 (risk of approx. 7.6%). Sell half the position at $6.33 and raise the stop on the remaining position to breakeven.

Norfolk Southern (NSC) never set back as it accelerated to the upside last week. I would cancel any open orders.

Knight Transportation, Inc (KNX) dropped as low as $18.66 after the initial article. On the 50% long position from $19.24 and 50% at $19.06, raise the stop from $17.96 to $18.24. KNX closed Friday at $19.46. On a move above $19.76, raise the stop to $18.79.  Sell half the position at $21.66 and raise the stop on the remaining position to breakeven.

Stocks: NM, POT, MOS, IPI, ALEX, LUV, KNX, CF