Agriculture investment has been an excellent way to make money, whether through futures contracts, long and short selling or buying stock. From the time that the New York Mercantile Exchange was founded in the mid-1800s, traders have realized that the need to eat would always drive this commodity. For the year ahead, agriculture stocks once again look to be great investments.
While there are a number of intriguing candidates, some of the best agriculture stocks to consider for 2012 are CVR Partners LP (NYSE:UAN), Terra Nitrogen Company (NYSE:TNH), Monsanto Company (NYSE:MON), Agrium Inc (NYSE:AGU), Potash Corporation of Saskatchewan (NYSE:POT) and The Mosaic Company. (NYSE:MOS) With a number of factors working in their favor, these companies stand to reap a profitable harvest for investors.
CVR Partners LP
The fertilizer sector is an integral part of the agriculture industry, and saw a huge increase in the second half of 2011. CVR was a big part of that increase, with a year-to-year third-quarter increase of 66.4% that helped to power the company to a net revenue increase of nearly $23 million over its 2010 total.
This year looks bright for the company as well. CVR has been investing resources in the production of UAN fertilizer, a highly valued mixture of urea and ammonium nitrate. The company poured over $36 million into an expansion project that will allow it to increase production of UAN by 400,000 tons per year. CVR stock price is climbing and its dividend of $2.29, yield of 9.70% and PEG of 37.7 suggest that it will be a big mover this year.
Terra Nitrogen Company
CVR isn’t the only major player in the fertilizer business enjoying success. Terra Nitrogen has also seen its profit surge as the company rode rising prices and demand to record sales of $597.9 million through the first three quarters of 2011. Recording an impressive 42% increase in year-to-year revenue, Terra Nitrogen was a great investment for the year.
Many analysts expect 2012 to be more of the same. Since it focuses on lower-priced nitrogen-based chemicals, Terra Nitrogen has lower production costs than competitors such as Mosaic and Potash, which specialize in fertilizers based in phosphate and potash. TNH is currently trading within 10% of its 52-week high and still trending upward. A dividend of $15.84 and a yield of 9.40% help Terra to offset an anemic PEG of 0.89. Although it is trading above both its 50-day and 200-day moving averages, the strong business forecast suggests that this could be a big mover in 2012.
Still a heavy-hitter in the chemical and fertilizer industry, Monsanto has pinned its future success on its leading role in developing and producing bio-seeds. Going against competitors like DuPont (NYSE:DD) and its Pioneer Hi-Bred division, Monsanto’s ability to hold off its rival will likely determine how profitable the company will be in 2012.
Right now things are looking very promising for Monsanto. The Latin American seed markets are expected to see a surge in demand for genetically-engineered varieties, especially in Brazil and Argentina. Monsanto has established a solid presence in the region, and many experts anticipate that translating to a profitable year. The stock, currently trading in the low 70s, has a 1-year target of between $81 and $87, with the higher number suggest an increase of more than 20% over the next twelve months.
The forecast for DuPont over the same period is a steadier climb of 15%, from its current price of around 47 to a projected high of 54. Monsanto has a dividend of $1.20, a yield of 1.70% and a PEG of 8.22, compared with DuPont’s dividend of $1.64, yield of 3.60% and PEG of 3.45.
Agrium is another big player in the fertilizer market and thanks in large part to its nitrogen operation, it is expected to enjoy a solid 2012. Stable debt and climbing revenues combine with a surging demand to help make this company a strong agricultural stock to consider in 2012. Agrium enjoyed a year-to-year revenue increase of 54%, matching rival Mosaic and besting Terra Nitrogen’s 19% rise.
An agreement with India to purchase more potash-based fertilizer has Agrium, Mosaic and Potash Corp all poised to enjoy big gains for 2012. Over the next 12 months, Agrium is expected to reach its current 52-week high of $99.14. The company had a dividend of $0.45 and a yield of 0.70%. Neither Mosaic nor Potash is expected to reach their current 52-week high. Mosaic has a dividend of $0.20 and a yield of 0.40%, while Potash came in at a dividend of $0.28 and a yield of 0.70%.
The Mosaic Co.
Mosaic enjoys much of the same dynamic that affects the other non-nitrogen fertilizer companies like Potash Corp. Although the worldwide market for Potash and Phosphate fertilizers has been relatively unchanged, producers are looking to regions like China, India and Latin America to help spur an increase. The recent agreement with India for more Potash-based additives is one such example. This is one reason that Mosaic, like Agrium, enjoyed a 54% increase in year-to-year revenue.
Although Mosaic offers a weak PEG of 1.39, it has other metrics which suggest it would be a very strong holding in 2012. Building on its success last year, the company dished out a $0.20 dividend and 0.40% yield as it trades well below both its 50-day and 200-day moving averages. Sitting at about $52 per share, it is less than 20% above its 52-week low price. This is surprising, since its 1-year target is $84.46, suggesting an increase of 60% on the current prices. For these reasons, Mosaic is potentially a very strong purchase for 2012.
Although it is still performing well, the formerly bullish winds of investor opinion seem to be blowing against Potash. Although the stock is well-liked by hedge funds, the number of them holding POT shares dropped during 2011. In addition, earnings warnings have been issued by some investment firms and Citigroup removed Potash from its Top Picks live list, although it is still rated a buy.
The metric analysis for POT is a mixed bag as well. Although the stock is trading below its 200-day moving average, it is on the verge of dipping below its 50-day average. Both averages are trending downward. That said, the company paid a dividend of $0.28, had a yield of 0.70% and owns a respectable PEG of 3.87. With a 1-year target of $59.66, (about 40% above its current share price) POT may not be a top pick in the sector, but it is still a very promising stock to own.
Growing a Portfolio with Ag Stocks
With continued increases in demand fueled by population growth, ag stocks continue to be solid investments, especially in a diversified portfolio. Anyone looking to add agriculture stocks in 2012 will want to consider these six, all which have the opportunity to sprout a handsome profit.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.