Analyst Bullish on Fertilizers Despite Droughts

Remarks from a bullish analyst are helping fertilizer stocks gain on the S&P, but the outlook remains hazy.

Thomas Weisel initiated its coverage on the fertilizer industry today with a sector rating of Favorable. The analyst noted that though uncertainty remains, it appears that the industry may be nearing a cyclical bottom, and cited an attractive risk/reward ratio for its positive outlook. Fertilizer stocks are up across the board today, some by upwards of 3%.

As a whole, the Agricultural Chemical and Fertilizer Stocks Index is up by 1.8% today as major benchmarks trade relatively flat. Fertilizer stocks are now averaging 4.2% better than the S&P 500 over the last month.

The analyst also initiated individual coverage on four of the five largest U.S.-listed fertilizer companies. Mosaic (NYSE: MOS - News) and Potash (NYSE: POT - News) received Overweight rankings. Intrepid Potash (NYSE: IPI - News) was ranked Market Perform, and the firm's most pessimistic outlook was for Agrium (NYSE: AGU - News), which it ranked Underweight. All four are taking part in today's fertilizer rally.

China Green Agriculture (AMEX: CGA - News), Mosaic, and KMG Chemicals (NASDAQ: KMGB - News) are all up by more than 3% in the rally. The latter two have added 30% in the last month while China Green Agriculture has more than doubled.

There are some things to consider before diving into the fertilizer market on the Thomas Weisel recommendation. According to an August 11th report by Bloomberg, a weak monsoon season could weigh on the demand outlook for potash. Srikant Jena, India's minister of state for chemicals and fertilizers was quoted stating, "The drought situation is very bad and obviously demand for fertilizer will fall."

German salt and fertilizer company K+S AG saw its second-quarter operating profit plummet by -95%. The company said 2009 earnings would fall sharply according to Reuters. K+S chief executive Norbert Steiner said, "There is no sign yet of normalization of demand." Investors remained optimistic for the stock, sending shares up by more than 2% overseas.

Monsanto (NYSE: MON - News) was the sector's most popular stock among professional investors in the second quarter. 145 Pros counted the stock among their top-15 U.S.-listed equity holdings at the end of Q1.

As of this writing, the Agricultural Chemical and Fertilizer Stocks Index is one of the 35 cheapest tickerspy Indexes by P/E ratio, with an average of 13.6.

New 13F filings are starting to trickle in for Pro holdings at the start of Q3, so be sure to check tickerspy.com in coming weeks for additional coverage of Pro holdings across all industries.

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