Amid an absolutely incredible surge in commodity prices, the search for the best fertilizer stocks has taken hold. And while fertilizer prices are coming down, it’s clear that this sector isn’t as “boring” as investors once thought. Indeed, after a taste of what a bull market in commodities looks like, many investors are now warming up to the idea of owning these companies.
It’s true that fertilizer stocks are inherently boring, to some degree. We’re talking about minerals, not exciting electric vehicles or tech. However, the essential nature of these vital products that ensure our high living standards is starting to be recognized by the market. And with global food demand steadily increasing, it’s becoming clear that companies with well-established supply chains are going to be even more important to the national security of many countries.
Inflationary forces are obviously what many investors are focused on when considering fertilizer stocks. Not all ride the same waves, as is evident in the recent performance of the 52-stock VanEck Agribusiness ETF (NYSEARCA:MOO). That exchange-traded fund is down more than 9% since Russia’s invasion of Ukraine.
However, there are some strong long-term growth trends that are worth factoring in. As the valuations of many of these stocks have come down, let’s dive into some of the best fertilizer stocks to consider right now.
|The Mosaic Company
|CF Industries Holdings, Inc.
The Mosaic Company (MOS)
Mosaic (NYSE:MOS) is a well-known player in the potash, phosphate and urea areas of the fertilizer market. This company’s market capitalization of more than $16 billion puts it in the top five in terms of major players in this space. Accordingly, for many investors looking at fertilizer stocks, Mosaic is one of the top options available.
Like other stocks on this list, Mosaic has benefited from recent geopolitical turmoil. Russia’s invasion of Ukraine has significantly constrained global nutrient supplies. As a key supplier to Europe, Mosaic is a company many view as a key beneficiary of this conflict.
Unfortunate as that may be, it’s unclear when there will be a resolution to this conflict. Until there is, investors have a key investment thesis to own this stock. The MOS stock price is up 9.5% since that invasion began on Feb. 24, while the S&P 500 index is down 7.6% in the same time frame.
The company’s recent results show just how profitable this “boring” sector has been of late. With year-over-year growth of more than 66%, Mosaic has been able to increase its dividend by 33%, and still trades at a valuation multiple of only 7 times trailing earnings. Thus, for those seeking value in this overvalued market, Mosaic is a great pick.
CF Industries Holdings, Inc. (CF)
A leading nitrogenous fertilizer manufacturer based in Deerfield, Illinois, CF Industries (NYSE:CF) has a market capitalization of just shy of $19 billion. Accordingly, this isn’t any small player in the production and distribution of nitrogen fertilizer.
Indeed, like Mosaic, CF has managed to ride the wave higher in terms of valuation to a significant degree. However, unlike Mosaic, CF has retained much of the value it gained earlier this year. At the time of writing, this stock has given up “only” 17% of its gains from its peak.
Much of this strength comes from the fact this company focuses on nitrogen production. A key input for crops such as corn, it’s expected nitrogen demand will remain strong this year. And that’s not necessarily because of global geopolitics. Rather, farming demand for crops such as corn, from Asia and Europe, is robust.
For those thinking long-term, CF stock certainly looks attractive at a valuation under 12x trailing earnings.
Nutrien Ltd. (NTR)
The leading provider of crop inputs in the world, Nutrien (NYSE:NTR) is a major player in the global agricultural space. This fully integrated producer of key agricultural products also owns a global chain of farm supply stores. Thus, from a value chain perspective, Nutrien captures much of the value created from production through to the sale to the end consumer.
Additionally, this company has significant market share in industrial farming inputs, spanning the agricultural and feed sectors. For those looking for a diversified way to play this sector, Nutrien remains my top pick in this sector.
Interestingly, Nutrien’s valuation model remains highly attractive. Trading at less than 11x trailing earnings, Nutrien’s impressive cash flows are being discounted to a great degree by investors.
Sure, prices are likely to come down. Maybe we’ve seen the peak in agricultural inputs for this cycle. However, for those who believe in the long-term nature of this sector, Nutrien’s valuation right now is very compelling.
This company also pays investors among the best dividend in the sector to be patient. At the time of writing, the company’s dividend yield is hovering around 2.5%.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.