Editor's note: As part of our partnership with PBS's Nightly Business Report, TheStreet's Jill Malandrino will appear on NBR Monday (check local listings) to discuss why fertilizer stocks could help your portfolio grow in 2012.
NEW YORK (
TheStreet) -- Commodities are slumping into the end of the year, overshadowed by the European sovereign debt concerns weighing on global growth and lessening demand for raw materials. But as corn enters 2012 with lower stockpiles and resilient demand, there are reasons to be bullish.
Not all commodities are poised to move higher, but there are some bright spots, and that is why I am planting myself in the fertilizer space for 2012, with
(MOS - Get Report) as my top pick.
So, what does the rising price of corn mean? Wouldn't higher commodity costs hurt agricultural names? Not in the case of the fertilizer space. This is a true global supply-and-demand story of "stuff" and consumption, and fundamentals have never been better.
Many investors try to draw parallels between the macro concerns that have led to the extreme stock-market volatility of recent weeks and those that were prevalent in 2008, but I believe such comparisons are unwarranted for fertilizer shares.
The food supply is tight and demand from China and India continues to grow as diets there change -- in fact, India's prime minister said his country is due for a second green revolution. Meanwhile, U.S. ethanol production is at a record high, and poor weather in South America's prevailing growth regions of Brazil and Argentina is further straining supply. Farmers need to satisfy the world's consumption demands, and whether they're growing grain, corn or beans, they need fertilizer to yield the best output.
The fertilizer group as a whole is very inexpensive and we are in the normal seasonal lows, making this a great time to quietly pick up some deals as shares have been beaten up. A big reason for the underperformance is that these stocks tend to track the price of corn, which has been falling throughout the second half of this year. This has created a disconnect between the stocks of farm equipment companies and the shares of the major fertilizer companies.
Many positive outlooks and favorable comments from the equipment makers indicate that the sell-off in fertilizer names may be overdone. For example,
stated in its
December investor presentation
that it expects the world's population to top 9 billion by 2050, which means agricultural output must double by that time. Furthermore, Deere expects 200 million households to join the middle class in the key regions of China and India. Data points such as population and income growth are critical, since they create a longer-term bid -- and a strong institutional investor base -- for these stocks.