There is a flip side to just about everything in life, isn’t there?
Take corn-based ethanol. It’s a plus for the Midwestern farmers growing corn as it provides them with more demand for their crop. It’s a negative for people buying food as the additional demand drives up food prices.
To be fair, let’s note that there are also other factors that have driven up food prices to historic highs: rising transportation (fuel) costs; and growing affluence in Asia, which has led to an increase in demand for meat, which in turn has driven demand for grain to feed livestock.
As many readers likely know, the US already has ethanol subsidies in place. And, as some may know, Congress just passed a bill increasing those subsidies (and Bush has said he’ll sign the bill now that several of the original clean energy subsidies were removed).
So, for now, there’s no sense debating whether increased ethanol subsidies are a good or bad thing. For our purposes, this saying applies: IT IS WHAT IT IS.
The bottom-line: More corn being grown to produce the additional ethanol means that more fertilizer will be needed. Fertilizer company stocks, which have posted scorching returns over the past year (and longer), should continue to do well.
Here’s a look at some of the major fertilizer companies (in order of market cap*):
- Potash (NYSE: POT) – Canadian firm specializing in potash**, a form of potassium carbonate, as well as nitrogen and phosphate, fertilizers. Some stats: $39.7 B market cap; 173% 1-year stock return; 1.9 beta; 24% Return on Equity (ROE); 30% operating margin (OM); 39% quarterly revenue growth & 67% quarterly earnings growth.
- Mosaic (NYSE: MOS) — Minnesota-based company that is the industry’s other giant potash producer. Stats: $36.6 B market cap; 276% 1-year return; 1.5 beta; 15% ROE; 14% OM; 55% Q revenue growth & 180% Q earnings growth.
- Agrium (NYSE: AGU) – Canadian company involved in nitrogen-based, potash, sulfur, and phosphate-based fertilizers. Stats: $7.8 B market cap; 92% 1-year return; other stats not immediately available (not listed on Yahoo Finance).
- CF Industries (NYSE:CF) — Illinois-based company that operates in two segments, nitrogen and phosphate fertilizers. Stats: $5.4 B market cap; 304% 1-year return; 0.9 beta; 27% ROE; 18% OM; 46% Q revenue growth & 1085% Q earnings growth.
- Terra Industries (NYSE:TRA) — Iowa-based company that produces nitrogen and methanol products for agricultural and industrial markets. Stats: $3.6 B market cap; 260% 1-year return; 1.9 beta; 15% ROE; 23% OM; 28% Q revenue growth & 426% Q earnings growth.
- Terra Nitrogen (NYSE:TNH) — Iowa-based limited partnership (LP) with a focus on nitrogen fertilizer products. Stats: $2.3 B market cap; 272% 1-year return; 2.3 beta; 98% ROE; 27% OM; 45% Q revenue growth & 232% Q earnings growth.
*Market capitalization (cap): # shares of company stock x stock price
**Potash: There’s a limited amount of potash production globally, thus, it’s a very profitable product for those companies producing it. Potash comes from mines, and the cost of replicating these massive mines represents a major ”barrier to entry” or “moat” (meaning other companies can’t easily get into this biz).
Before investing, do with information what those Midwestern farmers do in soil: dig, dig, dig!
This article is not a recommendation to buy or sell any securities.
