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Time to Step Into the Fertilizer Rebound - POT, MON, MOS

It’s been one of the best bullish trends since the end of last year, and is supported by the fundamentals (2 for 2). Better yet, there’s still a ton of room to recovery before these stocks even begin to challenge their prior highs.

I’m talking about fertilizer stocks… 2007’s heroes, one of 2008’s many disasters, and one of 2009’s - so far anyway - big winners.  The group has everything I like… strong technicals, earnings, and a future. Let’s look at each, and then drill down into some individual stocks you may want to latch on to.

Technicals

The chart of the S&P 1500 Fertilizer Index says it all pretty plainly. The industry’s stocks are up 40% off of December’s lows, and have just pushed off the lower edge of a bullish trading range (framed in the chart). The rebound off the support line really shouldn’t matter to long-term investors, but every little bit helps - these names are 7% under the recent peak.

Best of all, the group - as a whole - isn’t apt to run into a headwind of prior highs until it gains another 57%.

Fundamentals

The average forward-looking P/E ratio is 11.8, which isn’t fantastic, but could be worse…. and it was, just a few months ago. With a handful of one-time charges taken out of the equation, even the history doesn’t look that rough.

On the other hand, there’s still a boatload of disparity here… they’re not all the same. It’s not hard to choose one over another though. Hint: Most of the estimated future EPS figures are fairly plausible when compared to current or past earnings rates. There’s the key to finding the values. Well, that and the forward-looking price multiples.

Comparisons

Just as the overall results are all over the map for these companies, the underlying stocks are surprisingly unalike as well.

As boring as they are, the only names in the group that (1) haven’t completely run away, and (2) are at least holding up are the big guys… Potash, Mosaic, and Monsanto. There are other worthy charts in the bunch - AGU and CF to be precise - also worth considering. All the rest don’t look quite as compelling, and/or there’s a question regarding company performance.

Still, overall, we rate the fertilizer industry a ‘buy’.

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