BOSTON (TheStreet) -- Don't turn up your nose at fertilizer. As we enter the spring planting season, several fertilizer and agricultural chemicals stocks could be worth a look as analysts are upbeat on this historically volatile industry because the government says farmers will plant more corn than in the past 75 years. Fertilizer prices generally track crop prices, but they fluctuate with world food demand and weather patterns, among other things. That means there are lots of wildcards in this industry, but one of the greatest is how much corn China will import this year as it is the world's largest consumer. So far, the outlook is for much more than last year.
And corn prices have already been at a cyclical high for the past few years, in part due to its use in ethanol and rising demand from Asia. What's more, the U.S. Department of Agriculture said that, as of March 1, corn supplies nationally were down about 8% from a year ago.
All those factors set up a scenario for ever-higher prices for corn, which is used in everything from fuel and animal feed to syrup for soda.
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As a result of that outlook, farmers are expected to plant 4% more corn acreage than a year ago, which would make it the highest planted acreage dedicated to corn since 1937, according to the USDA.
Corn, in particular, requires lots of nutrients, which means higher demand for fertilizer commodities, principally potash, phosphates and nitrogen.
Acreage dedicated to wheat crops are also expected to increase this year, by 3%.
Goldman Sachs said it is bullish on fertilizer stocks in a report on the industry Friday. "Industry fundamentals have turned significantly more favorable since the last round of updates, with exceptional pricing gains in nitrogen and tentative signs of a recovery in phosphate and potash materializing.
"At the same time, (investor) sentiment remains negative, reflected in compressed multiples and ramping short interest," Goldman said. "This backdrop of improving fundamentals and low (investor) expectations is an attractive trading setup, in our view," especially as earnings are expected to improve in the second half of this year.
Similarly, Morningstar analyst Jeffrey Stafford said in a March 13 research note that "the potash market is attractive for a number of reasons. As potash is one of three essential crop nutrients, we think demand will grow as farmers strive to increase yields to feed a swelling global population. Moreover, the potash industry benefits from barriers to entry, as new (environmentally sensitive) greenfield projects are expensive and time-consuming.
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"Also, the industry is dominated by a handful of major players, leading to mostly rational pricing and supply decisions," he said. "In our opinion, potash prices will remain above historical levels, even as new capacity is added."
Finally, the International Fertilizer Industry Association said in its 2012 outlook that it expects 2.6% growth in fertilizer sales worldwide, to a record amount of tonnage.
Here are summaries of eight fertilizer industry stocks in inverse order of their market value:
8. Intrepid PotashCompany profile: Intrepid, a Canadian firm with a market value of $1.7 billion, is the only pure-play potash producer in North America, with mines in several locations in the Western U.S. as well as Canada.
Dividend Yield: N/A
Investor takeaway: Its shares are up 3% this year and have a three-year, average annual return of 3%. Analysts give its shares one "buy" rating, two "buy/holds," six "holds," one "weak hold," and one "sell," according to a survey of analysts by S&P. Morningstar analyst Jeffrey Stafford writes that Intrepid has a significant price benefit versus its bigger rivals due to its proximity to its customers, since it has mines in New Mexico and Utah, as well as in Canada.
And it not only sells potash to agricultural customers near its facilities, but also to industrial clients, mainly oil and natural gas drillers in the southern U.S.
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"Customers in Intrepid's markets consume about five times the company's annual production capacity, so Intrepid is able to focus on sales where its freight advantage is greatest, leading to higher realized sales," Stafford said. But on the down side, "its earnings power is highly dependent on the price of potash, as determined by other (much bigger) industry participants."
7. CVR PartnersCompany profile: CVR, with a market value of $2 billion, owns a nitrogen fertilizer business. It is a limited partnership created by CVR Energy to run that business, and in February, CVR said it would sell a portion of its stake in CVI to fund a special dividend for its investors.
Dividend Yield: 8.4%
Investor takeaway: Its shares are up 15% this year and 73% over the past 12 months. It gets little analyst coverage since it was spun off.
6. CVR EnergyCompany profile: CVR, with a market value of $2.5 billion, is a nitrogen fertilizer and urea ammonia nitrate producer and supplier throughout the Midwest. It also owns a petroleum refining company, a crude oil gathering system and a storage facility.
Dividend Yield: N/A
Investor takeaway: Its shares are up 52% this year and have a three-year, average annual return of 66%. Analysts give its shares one "buy/hold," rating and one "hold," according to a survey by S&P.
5. Terra NitrogenCompany profile: Terra, with a market value of $5 billion, produces and is a wholesale distributor of nitrogen fertilizer products used by U.S. farmers. It has production plants in Oklahoma and Arkansas. CF Industries owns 74% of the company. It does not get Wall Street analyst coverage.
Dividend Yield: 6.38%
Investor takeaway: Its shares are up 72% this year and have a three-year, average annual return of 31%. Its two chief products, ammonia and urea ammonium nitrate saw average selling prices increased by 21% and 79%, respectively, in 2011, contributed to an earnings increase of 153% to $508 million.
4. CF IndustriesCompany profile: CF, with a market value of $12 billion, is the biggest nitrogen fertilizer producer and phosphate distributor in North America.
Dividend Yield: 0.85%
Investor takeaway: Its shares are up 31% this year and have a three-year, average annual return of 38%. Analysts give its shares four "buy" ratings, eight "buy/holds," and seven "holds," according to a survey of analysts by S&P.
Goldman Sachs says the company is its top industry pick with a potential 10% to 15% upside on first-quarter earnings based on "exceptional nitrogen pricing trends, potentially good news on buybacks, and an attractive (valuation of) four times (earnings before interest, taxes, depreciation and amortization) multiple," which is 20% below the historical average of five times EBITDA.
3. AgriumCompany profile: Agrium is a Canada-based company with a market value of $13 billion. It owns more than 1,250 retail centers, which makes it the No. 1 agricultural retailer in the U.S. It sells fertilizers, crop chemicals, and seed directly to farm customers.
Dividend Yield: 0.52%
Investor takeaway: Its shares are up 29% this year and have a three-year, average annual return of 31%. Analysts give its shares 11 "buy" ratings, six "buy/holds," and eight "holds," according to a survey of analysts by S&P.
2. MosaicCompany profile: Mosaic, with a market value of $23 billion, is a leading producer of phosphate and potash, two of the three primary crop nutrients.
Dividend Yield: 0.94%
Investor takeaway: Its shares are up 1.6% this year and have a three-year, average annual return of 6%, but they have an average annual return of 12% over five years. Analysts give its shares six "buy" ratings, nine "buy/holds," and eight "holds," according to a survey of analysts by S&P.
Analysts expect it will earn $4.36 per share this year and that that will grow by 16% to $5.07 per share in 2013. S&P, which has a $64 price target on its shares, a 28% premium to the current price, has them rated "buy."
1. Potash Corp. of SaskatchewanCompany profile: Potash, with a market value of $37 billion, is the world's largest independent potash producer and a leading phosphate and nitrogen producer.
Dividend Yield: 1.29%
Investor takeaway: Its shares are up 6% this year and have a three-year, average annual return of 16%. The stock has a 10-year annualized return of 28%. Analysts give its shares eight "buy" ratings, 14 "buy/holds," six "holds," and one "sell," according to a survey of analysts by S&P.
Morningstar says it is the lowest-cost producer and has "strong strategic advantages," given its operations worldwide. Goldman Sachs has a "neutral" rating on its shares, but a $48 price target, which is about a 12% premium to the current price.
>>To see these stocks in action, visit the 8 Fertilizer Stocks Primed for Growth portfolio on Stockpickr.