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8 Fertilizer Stocks Primed for Growth

BOSTON (TheStreet) -- Don't turn up your nose at fertilizer.

As we enter the spring planting season, several fertilizer and agricultural chemicals stocks could be worth a look as analysts are upbeat on this historically volatile industry because the government says farmers will plant more corn than in the past 75 years.

Fertilizer prices generally track crop prices, but they fluctuate with world food demand and weather patterns, among other things. That means there are lots of wildcards in this industry, but one of the greatest is how much corn China will import this year as it is the world's largest consumer. So far, the outlook is for much more than last year.

And corn prices have already been at a cyclical high for the past few years, in part due to its use in ethanol and rising demand from Asia. What's more, the U.S. Department of Agriculture said that, as of March 1, corn supplies nationally were down about 8% from a year ago.

All those factors set up a scenario for ever-higher prices for corn, which is used in everything from fuel and animal feed to syrup for soda.

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As a result of that outlook, farmers are expected to plant 4% more corn acreage than a year ago, which would make it the highest planted acreage dedicated to corn since 1937, according to the USDA.

Corn, in particular, requires lots of nutrients, which means higher demand for fertilizer commodities, principally potash, phosphates and nitrogen.

Acreage dedicated to wheat crops are also expected to increase this year, by 3%.

Goldman Sachs (GS) said it is bullish on fertilizer stocks in a report on the industry Friday. "Industry fundamentals have turned significantly more favorable since the last round of updates, with exceptional pricing gains in nitrogen and tentative signs of a recovery in phosphate and potash materializing.

"At the same time, (investor) sentiment remains negative, reflected in compressed multiples and ramping short interest," Goldman said. "This backdrop of improving fundamentals and low (investor) expectations is an attractive trading setup, in our view," especially as earnings are expected to improve in the second half of this year.

Similarly, Morningstar analyst Jeffrey Stafford said in a March 13 research note that "the potash market is attractive for a number of reasons. As potash is one of three essential crop nutrients, we think demand will grow as farmers strive to increase yields to feed a swelling global population. Moreover, the potash industry benefits from barriers to entry, as new (environmentally sensitive) greenfield projects are expensive and time-consuming.

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"Also, the industry is dominated by a handful of major players, leading to mostly rational pricing and supply decisions," he said. "In our opinion, potash prices will remain above historical levels, even as new capacity is added."

Finally, the International Fertilizer Industry Association said in its 2012 outlook that it expects 2.6% growth in fertilizer sales worldwide, to a record amount of tonnage.

Here are summaries of eight fertilizer industry stocks in inverse order of their market value:
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