The fertilizer industry has gained strength, courtesy of improving pricing and demand dynamics for major crop nutrients. Moreover, prices of primary crop nutrients are likely to gain momentum on the back of strong global demand and tightened supply. We believe that the time is right for the investors to add some fertilizer stocks that offer significant growth prospects.
Favorable Zacks Industry Rank
The Zacks Fertilizers industry currently carries a Zacks Industry Rank #49, which places it in the top 20% of more than 250 Zacks industries. The favorable rank reflects the industry’s strength. Our back testing shows that the top 50% of the Zacks ranked industries outperforms the bottom half by a factor of more than two to one.
Healthy Pricing & Demand Fundamentals
Global nitrogen demand and supply balance is likely to continue to tighten, thereby providing a boost to nitrogen prices. CF Industries Holdings, Inc. (CF - Free Report) expects global nitrogen supply to be lower-than-expected, while demand is likely to stay strong in the short- to midterm. Per the company, farmers are expected to plant 93 million acres of corn in the United States in 2019, around four million more acres than 2018 levels. This along with the expected increase in wheat plantings is likely to drive nitrogen demand in North America.
According to CF Industries, China's role in globally traded urea continues to shrink. Enforcement of environmental regulations along with higher feedstock costs are limiting export volumes from China. Expected demand for urea in Brazil and India is also expected to support a tighter global nitrogen demand and supply balance into 2019.
Another major fertilizer maker, Nutrien Ltd. (NTR - Free Report) , also expects a favorable demand environment along with limited new supply and relatively stable Chinese urea exports to support nitrogen prices.
Also, global phosphate and potash market fundamentals are improving as well as demand growth is strong. The Mosaic Company (MOS - Free Report) sees continued growth in global demand for phosphates and expects record shipments in 2019. The company expects global phosphate demand growth to outpace supply additions in 2019, providing support to prices. Lower Chinese exports and slower-than-expected ramp up of new facilities have contributed to tighter phosphates supply. Tighter market conditions have also boosted potash prices.
A Few Concerns
Weak agricultural commodity prices are a roadblock in the near future. Prices of major crops (such as corn and soybeans) are at multi-year lows due to a supply glut. Trade tussle between the United States and China has weighed on crop prices in North America. Depressed U.S. farm income is likely to have a negative impact on farmers’ nutrient-purchasing decisions.
3 Fertilizer Stocks to Consider
Despite a few persisting headwinds, the overall fundamentals of the fertilizer industry are improving on the back of healthy demand and pricing for major crop nutrients. Moreover, the constant need of farmers to nourish their crops, replenish nutrients in the soil following a harvest and boost yields to feed a growing world support the bullish case for fertilizers.
Below we highlight three fertilizer stocks, all carrying a favorable Zacks Rank, that are preferable investment options in the prevailing environment.
Based in Deerfield, IL, CF Industries is a solid choice for investors. The stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. The company has an expected long-term earnings growth rate of 6%. It also has an expected earnings growth of 70.5% for 2019. The Zacks Consensus Estimate for 2019 earnings moved up around 4.8% in the past 60 days to $2.64.
The Saskatoon, Canada-based company carries a Zacks Rank #2 and has an expected long-term earnings growth rate of 10.5%. It also has an expected earnings growth of 27.2% for 2019. The Zacks Consensus Estimate for 2019 earnings inched up around 1.5% in the past 60 days $3.39.
The Scotts Miracle-Gro Company (SMG - Free Report)
Based in Marysville, OH, Scotts Miracle-Gro also carries a Zacks Rank #2 and has an expected long-term earnings growth rate of 9.1%. It also has an expected earnings growth of 12.7% for fiscal 2019. The Zacks Consensus Estimate for fiscal 2019 earnings moved up around 0.2% in the past 60 days to $4.18.
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