Fertilizer Stocks Will Continue to Work

We know the fertilizer stocks are absurd. We've seen these endless runs in various groups from time to time: dot-coms, merchant power companies, ethanol plays.

I am not saying this is any different. We will find, at these prices, more of the rock we need to make fertilizer.

But right now the shortages and the inability to put up new factories make these stocks the stocks to be in.

What makes Potash (POT - commentary - Cramer's Take), Mosaic (MOS - commentary - Cramer's Take), Agrium (AGU - commentary - Cramer's Take) and the other guys, including Intrepid (IPI - commentary - Cramer's Take), so special? Inventories. Specifically a lack of them. For about 25 years, we had too much grain inventory. That kept a lid on any company finding the basic materials in fertilizer and it made it so there was no sense whatsoever in building new plants. The business was a lot like gypsum board -- it made no sense to build a new plant because the world was saturated with fertilizer plants.

Then, just like when China became a net importer of coal, the world switched to being a net importer of grain. At the same time the world subsidized grain -- the U.S. being the worst -- to make renewable fuels. Suddenly you got paid so much for grain that you could layer on fertilizer, which helped yields that would make it so the firms could raise prices at will.

As long as grain prices stay up and as long as fertilizer can be demonstrated to get a higher yield per acre even at these prices, and as long as you can't afford to start a new plant or find the rock, these stocks are going higher.

I continue to be bullish on them. I continue to believe that you must own calls on one of them, preferably deep-in-the-money calls, if you are going to outperform this market.

At the time of publication, Cramer had no positions in the stocks mentioned.

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