Fertilizer prices across the world have skyrocketed in recent months amid a production lull from China, an export ban in Russia, and supply chain problems related to the pandemic. Severe storms in the United States that have damaged nitrogen production, an essential part of fertilizer manufacture, have also contributed to this rise. The hike in oil and gas prices has affected the market as well. In December, the Family Farm Action Alliance petitioned the United States Department of Justice to investigate fertilizer companies in relation to the fertilizer price hikes.
Consolidation and Future Trends in Fertilizer Market
The Fertilizer industry has witnessed historic consolidation in the past few decades. Big companies like CF Industries Holdings, Inc. (NYSE:CF), The Mosaic
Company (NYSE:MOS), and Nutrien Ltd. (NYSE:NTR) control over 90% of the fertilizer market in the US. Since the 1980s, the total number of fertilizer companies in the North American country has dropped from 46 to merely 13. According to a report by Research and Markets, the global fertilizer industry will grow at a compound annual growth rate of around 4% in the next few years.
Some of the dominant trends expected to shape the market include the growth in the Asia-Pacific region, the decrease in arable land mass against increased demand, and a competitive business landscape. Investors eager to profit from the current boom in the sector, expected to last well into 2022 and beyond, should consider investing in some of the top firms working in the fertilizer business.
Best Fertilizer Stocks To Buy Now
10. CVR Partners, LP (NYSE:UAN)
Number of Hedge Fund Holders: 5
Like other industries, the agriculture sector has also been hit by supply shortages in the past few months. An increase in demand for corn has led to more corn being planted. This has led to an increase in demand for nitrogen fertilizers, a key product of CVR Partners, LP (NYSE:UAN). Corn crops that do not use nitrogen fertilizers have yields affected by as much as 40%. The prices of nitrogen fertilizer have thus more than doubled in the past few months, leading to greater revenues for firms like CVR Partners, LP (NYSE:UAN).
The positive business momentum is also reflected in the share price of CVR Partners, LP (NYSE:UAN) that has climbed more than 390% in the past twelve months. With supply disruptions likely to persist in 2022, the stock has plenty of room to climb even higher.
There has been increased hedge fund interest in CVR Partners, LP (NYSE:UAN) as well. At the end of the third quarter of 2021, 5 hedge funds in the database of Insider Monkey held stakes worth $20 million in CVR Partners, LP (NYSE:UAN), up from 3 in the preceding quarter worth $18 million.
Just like CF Industries Holdings, Inc. (NYSE:CF), The Mosaic Company (NYSE:MOS), and Nutrien Ltd. (NYSE:NTR), CVR Partners, LP (NYSE:UAN) is one of the stocks on the radar of value investors.
9. ICL Group Ltd (NYSE:ICL)
Number of Hedge Fund Holders: 6
ICL Group Ltd (NYSE:ICL) is a specialty minerals and chemicals firm. The phosphate products marketed by the firm are used in fertilizers. ICL Group Ltd (NYSE:ICL) has consistently paid a dividend to shareholders for the past four years. ICL Group Ltd (NYSE:ICL) has also stepped up plans to invest in EV battery chemicals.
ICL Group Ltd (NYSE:ICL) is the leading producer of bromine in the world and has significant operations in the Dead Sea, famous for abundance of salts and minerals to exploit. ICL Group Ltd (NYSE:ICL) is a unique asset as it is also the largest producer of specialty fertilizers owing to the agro-tech expertise it employs in their production.
The market-leading position of ICL Group Ltd (NYSE:ICL) is reflected in the hedge fund sentiment around the firm. At the end of the third quarter of 2021, 6 hedge funds in the database of Insider Monkey held stakes worth $87 million in ICL Group Ltd (NYSE:ICL), the same as in the preceding quarter worth $73 million.
ICL Group (NYSE:ICL) in November declared $0.0837 per share quarterly dividend, a 60% increased from its prior dividend.
8. Intrepid Potash, Inc. (NYSE:IPI)
Number of Hedge Fund Holders: 10
In early January, Intrepid Potash, Inc. (NYSE:IPI) stock was named among a bunch of “resilient” picks in the chemicals and agriculture sector by investment bank UBS. The bank said that higher commodity and energy prices were leading to higher specialty chemicals prices, a 2021 phenomenon that would persist in 2022. A rise in potash selling prices has led to a massive increase in the share price of Intrepid Potash, Inc. (NYSE:IPI) in the past twelve months. The stock has climbed 31% in the past six months.
In addition to fertilizers, Intrepid Potash, Inc. (NYSE:IPI) also has a business in selling high-margin water to oil and gas firms. The margins for this business are expected to improve in 2022 as the firm improves water recycling capacity to 200,000 barrels per day.
As a new year begins, hedge funds seem bullish on Intrepid Potash, Inc. (NYSE:IPI) stock too. At the end of the third quarter of 2021, 10 hedge funds in the database of Insider Monkey held stakes worth $19 million in Intrepid Potash, Inc. (NYSE:IPI), up from 8 in the previous quarter worth $21 million.
In its Q4 2020 investor letter, Bumbershoot Holdings LP, an asset management firm, highlighted a few stocks and Intrepid Potash, Inc. (NYSE:IPI) was one of them. Here is what the fund said:
“From an investment perspective, Intrepid Potash (IPI:NYSE) struggled right off the bat, down roughly -30% in Jan-Feb. Intrepid despite being a significant drag on returns for most of the year, recovered at the very end of December and was a non-material contributor.”
7. LSB Industries, Inc. (NYSE:LXU)
Number of Hedge Fund Holders: 12
LSB Industries, Inc. (NYSE:LXU) makes and sells nitrogen-based fertilizers. Over the past few years, LSB Industries, Inc. (NYSE:LXU) has seen a business boom as these fertilizers become more widely accepted due to their environmental friendliness when compared to pesticides and other chemicals. Analysts expect the company to report sales of more than $500 million in 2022, an increase of nearly 4% from 2021. The EPS estimates for LSB Industries, Inc. (NYSE:LXU) in 2022 are around $0.33, compared to loss projections for 2021.
Since the ammonium sulfate fertilizer industry, a product that LSB Industries, Inc. (NYSE:LXU) markets, is expected to grow at a rate of over 4% in the next five years, it is expected that there is plenty of room for LSB Industries, Inc. (NYSE:LXU) to grab market share in the space, leading to increased revenues.
Major hedge funds have also backed LSB Industries, Inc. (NYSE:LXU) to exceed expectations in the coming months. Among the funds being tracked by Insider Monkey, Connecticut-based investment firm Tontine Asset Management is a leading shareholder in LSB Industries, Inc. (NYSE:LXU) with 1.3 million shares worth more than $13 million.
6. Compass Minerals International, Inc. (NYSE:CMP)
Number of Hedge Fund Holders: 22
Deutsche Bank analyst David Begleiter recently upgraded Compass Minerals International, Inc. (NYSE:CMP) stock to Buy from Hold with a price target of $73, noting that the shares were trading at a discount and those investors buying Compass Minerals International, Inc. (NYSE:CMP) through this period were getting a “free option” on lithium. The analyst believes the lithium potential alone could add $30 per share to the price of the stock in the coming years. Compass Minerals International, Inc. (NYSE:CMP) produces and sells essential minerals.
Despite declining salt revenues, Compass Minerals International, Inc. (NYSE:CMP) remains heavily invested in salt sales. Sale revenues for the firm account for over 70% of the total revenue for Compass Minerals International, Inc. (NYSE:CMP). The firm also has a large international business in plant nutrition.
There is positive hedge fund activity around Compass Minerals International, Inc. (NYSE:CMP). At the end of the third quarter of 2021, 22 hedge funds in the database of Insider Monkey held stakes worth $191 million in Compass Minerals International, Inc. (NYSE:CMP).
In addition to CF Industries Holdings, Inc. (NYSE:CF), The Mosaic Company (NYSE:MOS), and Nutrien Ltd. (NYSE:NTR), Compass Minerals International, Inc. (NYSE:CMP) is one of the stocks that elite investors are buying.
In its Q4 2020 investor letter, Bernzott Capital Advisors, an asset management firm, highlighted a few stocks and Compass Minerals International, Inc. (NYSE:CMP) was one of them. Here is what the fund said:
“Compass Minerals International (CMP): The stock gained 5%, normally not a bad outcome, but that stacks up poorly against many Materials stocks such as steel producers, which rebounded strongly after a couple of years of poor performance.”
5. The Scotts Miracle-Gro Company (NYSE:SMG)
Number of Hedge Fund Holders: 30
Wells Fargo analyst Chris Carey recently initiated coverage of The Scotts Miracle-Gro Company (NYSE:SMG) stock with an Overweight rating and a price target of $180, noting that the firm was the largest supplier of hydroponics equipment and supplies in North America and had a stable consumer lawn and garden business. The analyst noted that the hydroponics business had gone from taboo to mainstream on Wall Street in recent years.
In early January, The Scotts Miracle-Gro Company (NYSE:SMG) announced that it would be purchasing Luxx Lighting, a provider of storage for dry plant products, in a deal worth around $215 million. The purchase will add $100 million in sales to the business of The Scotts Miracle-Gro Company (NYSE:SMG) on an annual basis.
Interest around the unique proposition of The Scotts Miracle-Gro Company (NYSE:SMG) in the plant sector has been rising in recent months. Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in The Scotts Miracle-Gro Company (NYSE:SMG) with 713,833 shares worth more than $104 million.
In its Q2 2021 investor letter, Madison Funds, an asset management firm, highlighted a few stocks and The Scotts Miracle-Gro Company (NYSE:SMG) was one of them. Here is what the fund said:
“In Consumer Staples on the other hand, Scott’s Miracle-Gro (SMG) was our worst performing stock, ironically after posting record results. There are a few factors at play here. SMG’s lawncare business benefitted immensely from the lock down and work from home, as homeowners spent more time at home and invested in remodels and upgrades which included their lawn and gardens. Furthermore, the weather was very supportive for lawn and garden season. However, stocks are forward looking vehicles and investors are betting that the best is behind Scott’s and reopening will mean less spending on lawncare. While it’s difficult to argue against a slowdown, we continue to like this dominant franchise for two reasons. First, home ownership has expanded and continues to expand, and second, Scott’s owns the Hawthorne franchise. Hawthorne sells lighting, nutrients and grow media into the fast growing commercial cannabis market. It is the country’s largest and most profitable cannabis supply vendor. Over the last 6 months, laws legalizing recreational marijuana use have passed in several states including New York, Connecticut, South Dakota, and Virginia. Meanwhile the most mature legal states like Colorado and California are still growing rapidly for Hawthorne’s products. The pullback in the stock has been dramatic and excessive, in our opinion. We believe a sum of the parts framework can yield great insight. The Hawthorne business is an effective duopoly with Hydro Farm (HYFM) – also a portfolio company. The market values HYFM at 5x revenue. If we apply the same multiple to Hawthorne’s revenue, this implies that the market leading Scotts’ Miracle-Gro franchise, with greater than 25% Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) margins, is valued at just 5x EBITDA.”
4. Nutrien Ltd. (NYSE:NTR)
Number of Hedge Fund Holders: 30
A global food shortage, in part due to supply chain problems because of the pandemic, and climatic issues have combined to push fertilizer prices, one of the premier products of Nutrien Ltd. (NYSE:NTR), to record highs in the past few months. A ban on fertilizer export in Russia, one of the largest fertilizer producers in the world, has aided in making fertilizers expensive in Europe. Analysts predict the higher prices will lead to lower crop yields and further food shortages in the EU in the coming months.
As countries like China and India also protect their fertilizer production, it is likely that prices in the US will remain high in 2022, benefiting firms like Nutrien Ltd. (NYSE:NTR). The firm, along with Mosaic, controls over 90% of the potash market in the US. It is also a leading producer of nitrogen-based fertilizers.
This is why Nutrien Ltd. (NYSE:NTR) has been a hedge fund favorite for the past few years. At the end of the third quarter of 2021, 30 hedge funds in the database of Insider Monkey held stakes worth $853 million in Nutrien Ltd. (NYSE:NTR), up from 28 in the preceding quarter worth $596 million.
In its Q1 2021 investor letter, Miller/Howard Investments, an asset management firm, highlighted a few stocks and Nutrien Ltd. (NYSE:NTR) was one of them. Here is what the fund said:
“For the most part, performance of the stocks within the Income-Equity Strategies was skewed towards the high-performing market sectors with two exceptions – our consumer discretionary and technology stocks both did better than their broad market peers… We bought Nutrien (NTR), a producer of fertilizer, which we believe should benefit from increasing crop prices.”
3. Bunge Limited (NYSE:BG)
Number of Hedge Fund Holders: 37
Bunge Limited (NYSE:BG) is one of the most stable businesses in the agriculture sector. The firm has paid a dividend to shareholders for 19 consecutive years. In early November, Bunge Limited (NYSE:BG) declared a quarterly dividend of $0.525 per share. The forward yield was 2.27%. In earnings results for the third quarter, Bunge Limited (NYSE:BG) beat market estimates on earnings per share and revenue by $2.30 and $230 million respectively.
BMO Capital analyst Kenneth Zaslow has an Outperform rating on Bunge Limited (NYSE:BG) stock with a price target of $108. Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Candlestick Capital Management is a leading shareholder in Bunge Limited (NYSE:BG) with 1.1 million shares worth more than $94 million.
2. The Mosaic Company (NYSE:MOS)
Number of Hedge Fund Holders: 40
The Mosaic Company (NYSE:MOS) also has a stellar dividend history stretching back a decade. On December 17, The Mosaic Company (NYSE:MOS) raised the quarterly dividend by 50% to $0.1125 per share. The Mosaic Company (NYSE:MOS) markets fertilizers and agricultural chemicals. It was recently named among a group of “resilient” chemicals stocks expected to perform better than peers in 2022 by UBS.
On December 16, The Mosaic Company (NYSE:MOS) reported that it had accumulated a revenue of over $1.2 billion in November, up 71% year-on-year. At the end of the third quarter of 2021, 40 hedge funds in the database of Insider Monkey held stakes worth $912 million in The Mosaic Company (NYSE:MOS), compared to 43 in the preceding quarter worth $808 million.
In its Q1 2021 investor letter, Appleseed Fund, an asset management firm, highlighted a few stocks and The Mosaic Company (NYSE:MOS) was one of them. Here is what the fund said:
“Our most significant contributors to the Fund’s equity performance during the quarter (includes) Mosaic Company (MOS). As for Mosaic, its share price has risen in sympathy with increasing grain prices, which should stimulate additional farmer investment into improving crop yields.”
1. CF Industries Holdings, Inc. (NYSE:CF)
Number of Hedge Fund Holders: 49
Piper Sandler analyst Charles Neivert recently initiated coverage of CF Industries Holdings, Inc. (NYSE:CF) stock with an Overweight rating and a price target of $78, noting that long-term ammonia prices were increasing amid shifts in the fertilizer business. The analyst backed CF Industries Holdings, Inc. (NYSE:CF) to deliver mid-cycle revenues of around $2.5 billion under higher prices. The analyst further noted that 2022 would represent the peak of the earnings cycle for CF Industries Holdings, Inc. (NYSE:CF).
CF Industries Holdings, Inc. (NYSE:CF) has been the favorite hedge fund stock among fertilizer firms in the past few months. At the end of the third quarter of 2021, 49 hedge funds in the database of Insider Monkey held stakes worth $1.2 billion in CF Industries Holdings, Inc. (NYSE:CF), up from 47 in the previous quarter worth $955 million.
