Which Fertilizer Stock Will Win in 2011?

NEW YORK (TheStreet) -- Fertilizer stocks were rising sharply again this week, helped by a strong earnings report from Mosaic (MOS), the big crop-nutrient company spun out from Cargill several years ago.

Mosaic, which released results after the close on Tuesday, posted net income of $1 billion, or $2.29 a share, for the quarter ended in November. The sum includes a big one-time gain from the sale of the company's stake in a South American fertilizer outfit.

Excluding the gain, Mosaic had an adjusted profit of $1.28 a share, which still sailed past Wall Street estimates of 91 cents a share for the quarter. That's much better than year ago. In the same period of 2009, Mosaic earned $108 million, or 24 cents a share. Revenue jumped as well. The company reported a top line of $2.7 billion, up 56% from a year ago.

>>Big 4 Fertilizer Stocks: Where Will They Trade in 2011?

Investors appeared to love the report, even though it simply confirmed what the world has known since last fall: Soaring crop prices have persuaded farmers to plow their profits back into an aggressive effort to juice their yields in 2011. That means they've bought a lot of fertilizer.

Not surprisingly, Mosaic's top executives were full of bullish remarks: "Demand for fertilizers is booming," CEO Jim Prokopanko told Bloomberg. "We're doing all we can to keep up with demand."

But that doesn't mean there aren't concerns. For one thing, some investors believe that the commodities boom of late 2010 has driven fertilizer stocks so high so fast that putting money into these names at this point is the height of risky, especially since a bumper harvest in 2011 in North America would likely crunch share prices across the agricultural spectrum.

Others point out that Mosaic's environmental troubles in Florida has cast a cloud over the stock. The company's prospects this year and beyond may very well depend on environmental litigation surrounding its phosphate mining operations in the state. Activists including the Sierra Club have effectively blocked Mosaic from running the mine, called South Fort Meade, at full capacity. Given the price trends for fertilizers, Mosaic would very much like to run the mine at full capacity.

The court battle could be resolved within a few months; some analysts say Mosaic will win; others aren't so sure. Unsurprisingly, the company itself expresses confidence. "Our South Fort Meade mine is one of the most cost effective and efficient operations in the world and we fully expect that we will be able to mine the ample resources located at South Fort Meade in the years ahead," Mosaic chief Prokopanko told investors in the earnings conference call Wednesday.

Regardless, to make up for its shortfall in supply, Mosaic has had to fill customer orders by buying phosphate rock from other sources, which could trim its profits. On the other hand, a scaled-back Fort Meade will push global phosphate prices higher.

Among the other names in the sector, CF Industries' ( CF) stock has run up more sharply than the rest, giving it a rather rich valuation relative to its peers. Still, CF, which bought rival Terra last year, is mostly a play on nitrogen, a key nutrient in the cultivation of corn, the company stands to benefit the most if maize prices stay high enough to convince U.S. farmers to plant more of it than soybeans, a plant that needs no nitrogen at all.

Calgary's Agrium, which failed last year to buy CF Industries, is the most diversified fertilizer name, with all three nutrients in its portfolio, along with a vast chain of farm-zone retail supply depots. It recently acquired the Australian ag-product merchant AWB, and quickly sold off the grain-trading division to Cargill in a deal praised by analysts.

Potash Corp. has everyone wondering how high its stock can go in the wake of its defeat of BHP Billiton ( BHP), which had waged its high-profile takeover battle with the world's largest fertilizer company during the latter half of 2010. One bull on Potash Corp. is Chris Damas, an investor and equities analyst based outside Toronto, who believes the company's high-quality assets ought to push Potash shares above $200. The stock was trading recently at about $165.

With all this in mind, we ask readers of TheStreet: Which fertilizer stock will outperform the rest in 2011? Take our poll to see the consensus ...

Which fertilizer stock will outperform the rest in 2011.

Mosaic
CF Industries
Agrium
Potash

-- Written by Scott Eden in New York

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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