Market Spotlight: Fertilizer Companies

By Stan Choe, AP Business Writer
Analysts Say Same Trends That Propelled Fertilizer Stocks Last Year Remain in Place

NEW YORK (AP) -- Fertilizer companies were stinkers this year -- until recently.
Yet stocks in the sector were among last year's biggest gainers, and analysts believe the same trends that propelled them remain in place.

Grain prices are rising around the world as people in developing countries gain income and consume more meat. Livestock require feed, which boosts demand for fertilizer. Capacity, meanwhile, is relatively constrained.

"Growing food is not a luxury," said Goldman Sachs analyst Edlain Rodriguez. He likes Potash Corp. of Saskatchewan in particular. The company is the largest producer of potash -- a mineral used in fertilizer -- in the world and a major producer of nitrogen and phosphate products.

CIBC World Markets analyst Jacob Bout expects "continued strength in fertilizer demand as farmers look to increase yields in the face of historically high crop prices, resulting in strong... pricing." He marginally prefers Agrium Inc. over Potash, saying it's priced more attractively.
Potash Corp. saw its shares surge 200 percent in 2007. Through the first three weeks of 2008, though, its stock fell nearly 18 percent on fears that a recession would hurt demand.

An inventory report also raised fear of rising supply. But now, Potash's stock is down just 2.1 percent for the year, less than the broad market.

The company last week reported its fourth-quarter profit more than doubled to $376.8 million due to stronger prices for its nutrients. Potash forecasts 2008 profit will exceed 2007s, and Wall Street expectations, as robust global demand for agricultural products and fertilizers is expected to continue. It estimates 2008 shipments will rise 7 percent to both North American and offshore potash markets.

Citi Investment Research analyst Brian Yu said industry fundamentals are indeed strong, but shares have already rebounded, so it may be too late to buy in cheaply. He rates Potash "Hold," saying the shares look fairly valued.