The fertilizer industry was once considered dull, but after being one of the most exciting sectors in the market for over a year, those days appear to be long gone. A confluence of factors, including increasing wealth in emerging markets, raw material shortages, and biofuel demand, have pumped up fertilizer prices and made fertilizer producers top performers on the stock market.
Meanwhile, the ramifications have been more than just soaring stock prices. The Wall Street Journal reported that in April fertilizer costs were up 65% year over year, adding "Those skyrocketing costs are making it harder for farmers to expand their harvests in response to the global food crisis that has sparked rioting, rationing, and export controls in many countries."
As governments look for solutions and fertilizer producers attempt to ramp production, savvy investors have been rewarded. Several institutional investors are locked into the bullish market for fertilizer firms. Hedge fund Dawson Herman Capital Management, which "has traditionally invested in the growth sectors of the U.S. economy," according to its website, has substantial exposure to the sector. Its top-four, U.S-listed equity holdings are fertilizer producers. During Q1, the firm added shares in Potash (NYSE: POT - News), the biggest company in the sector, while trimming stakes in potash producer Mosaic (NYSE: MOS - News); Terra Industries (NYSE: TRA - News), a firm that produces nitrogen and methanol products for agricultural and industrial markets; and CF Industries (NYSE: CF - News), which operates in two segments, nitrogen fertilizers and phosphate fertilizers.
Dawson also held shares of companies in other sectors, with its largest equity holding outside the fertilizer industry being a 4.6 million-share stake in the world's biggest builder of electricity networks, ABB Ltd. (NYSE: ABB - News). A list of the other companies Dawson is investing in is available at tickerspy.com.
Another hedge fund, Peconic Partners, which "focuses on combining a top-down view of the markets with risk management and strong fundamental stock selection," according to its website, is also a big holder of fertilizer producers' shares. Its top-two holdings are Potash and Mosaic, but it also has large stakes in CF and Canadian producer Agrium (NYSE: AGU - News). Outside of the fertilizer sector, Peconic's largest stake is in coal producer Alpha Natural Resources (NYSE: ANR - News). A list of the other companies Peconic is investing in is available at tickerspy.com.
Potash proved to be the most popular fertilizer company among Pro investors in Q1. Among the 77 investment firms holding stakes in the company, the largest was a 19.2 million-share stake held by mutual fund giant Janus Capital Management. Meanwhile, Potash is also the favorite fertilizer stock among tickerspy members, though Terra Nitrogen (NYSE: TNH - News), an incredibly volatile master limited partnership (MLP) with a focus on nitrogen fertilizer products, is popular as well, as is recent IPO Intrepid Potash (NYSE: IPI - News).
Pro portfolio performance is based on institutions' top-15 holdings as disclosed in quarter-end filings with the SEC. Pro performance does not take into account additional holdings beyond the top 15 nor does it include positions that are not required to be disclosed by the SEC. As such, Pro portfolio performance should be considered an approximation and not a precise record of how an institution has performed over time.
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