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business newsFast Growth in 4 Fertilizer Stocks
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MoneyShow.com Sep 14, 2011 11:15 am
As fertilizer industry fundamentals have bounced back, the stocks are once again drawing institutional buyers. Follow in the footsteps of the professionals and you could profit, too.
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One sub-sector, in particular, has shown unusual price strength. With world population growing, so is the need for fertilizers to speed food production.
Many of the fertilizer makers have been outperforming the broader market, with some rallying to all-time highs in recent weeks. Mid-cap Terra Nitrogen (TNH) pulled back from its new high of $199.50, reached on August 31, and has found solid support near its short-term 10-day moving average.
I tend to use the 50-day line more often as an indicator of medium-term support that may offer a technical entry point. Terra Nitrogen has not touched its 50-day since early August. For the most part, volume was robust as the stock trended higher, a signal of investor confidence.
The buying strength is encouraging, but I would prefer to wait for a pullback with 50-day support before making a buy.
At this juncture, with the stock showing hefty monthly percentage gains from May through August, it wouldn’t be surprising to see a pullback as investors grab some profits after the big run-up. But the institutional conviction that’s been evidenced so far means waiting to buy on 50-day support could be a profitable strategy.
Another fertilizer maker that’s retreating from an all-time high is CF Industries (CF), Terra Nitrogen’s parent company. The stock rallied to an intraday peak of $192.70 on August 30.
Volume was light on the rally, which is not ideal. However, the move came in the days prior to the Labor Day holiday, which often brings lower trading.
CF’s earnings growth skyrocketed in recent quarters, with analysts eyeing profit of $20.92 per share -- no, that’s not a typo -- for 2011. That would be a gain of 143% over 2010. It’s not unusual to see explosive growth like that slow somewhat, so analysts expect 2012 earnings to come in at a not-too-shabby $19.34 per share, a year-over-year drop of 8%.
Of course, consensus estimates can be wrong on either the high or low side, but they can be useful as an indication of institutional confidence in a company’s near-to-medium-term growth potential.
A recent IPO from the agricultural sector is Texas-based CVR Partners (UAN). It’s a subsidiary of CVR Energy (CVI).
CVR Partners’ stock has been forming the right side of a base and is trading above its 10-week average. Upside volume has been heavy in the past couple of sessions, and the stock is approaching its July 21 intraday high of $26.10.
CVR Partners produces nitrogen fertilizers, exactly the type of product that analysts expect to enjoy strong demand in the coming years. As with CF, this company is expected to show triple-digit profit growth this year, with growth levels slowing dramatically in 2012.
No positions in stocks mentioned.
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