Fertilizer Stocks a Growth and Value Harvest

Source: Kevin Cook, Zacks Investment Research  (10/11/11)

"'The demand for agriculture commodities has been immune to economic downturns with lower income elasticities of demand compared to either industrial metals or energy.'"


Companies that provide vital soil nutrients will be key investments in the global agricultural megatrend now underway. And now is an especially good time to look at some of the top names as their share prices have come down so hard recently and created some real values.

Won't Recession Plow Agricultural Stock Estimates?

This is an important question to address before buying any cyclical stock as the valuations on industrial, materials, and energy companies can look really attractive as their prices drop.

But when a recession, or even just a slowdown, is getting priced-in, stock prices get hit bad long before the estimates come down. And so what looks "cheap" today may be about to get more expensive as the earnings estimate revisions roll in.

This is a theme I have been writing about since the first week of August. I said the downward earnings revisions would come in September and October. So far, they haven't been that bad.

The Global Agriculture Megatrend

I have written often about the global megatrend of food demand, even calling this the "decade of food" as the world population tops 7 billion on its way to a projected 9 billion by 2050.

It's not just population growth driving agricultural trends. Emerging economies have billions of people who also aspire to raise their food choices along with their living standards. More meat-based diets mean more grain than ever will be demanded.

Okay, so that's the big secular trend driving things for the next several years. But what about the next six months, especially if recession becomes reality? According analysts at Macquarie Equities Research, generally "the demand for agriculture commodities has been immune to economic downturns with lower income elasticities of demand compared to either industrial metals or energy."

My outlook is that there will be no recession and that with these important stocks so cheap, one or two should be considered for the commodity portion of one's portfolio. And this isn't about "buy and hold" for years either.

With the excellent trading swings the fertilizer stocks tend to make, their resurgent bull markets should offer some good opportunities over the next several years to capture 10-30% gains every few months.

Kevin Cook is a Senior Stock Strategist with Zacks.com