Fertilizer Stocks Defy Gravity

Rob Curran of Dow Jones Newswires has the following dirt on fertilizer stocks:

Sometimes the laws of technical analysis, and gravity, temporarily fail. The question is: how much pain can a bear take on fertilizer stocks before they come back down to earth?

The charts say these stocks are stretched, but caveat emptor: the charts said the same thing 10%, 20% and 50% ago. Some say as long as the Fed’s hands are tied by financial worries, they will continue to sit on the other side of the seesaw to banking stocks.

Fertilizer, it’s good for plants. How about your portfolio?
Stocks like Sociedad Quimica y Minera de Chile, Mosaic and Potash Corp. of Saskatchewan are not so much momentum plays as rocket rides this year. Since June 6 Mosaic shares have risen more than 15% to $160 -– compared with its 52-week low of $32.50. American Depositary Shares of Chile’s Sociedad Quimica, meanwhile, have more than doubled in the space of three months to more than $54. Peers like Agrium and CF Industries Holdings Inc. are following similar paths.

Granted, the outlook is indisputably bright for these companies. Fundamentals for fertilizers have never been better, as farmers seek to squeeze more yield out of limited land and corn prices set records daily. Every quarterly earnings report brings another update on higher prices fetched for fertilizers. There are no signs that alternatives for increasing crop yields present a competitive threat.

Nevertheless, some observers, like Tobias Levkovich at Citigroup, say the rate of gain in the stocks is too reminiscent of bubbles in homebuilder stocks earlier this decade and technology stocks at the turn of the decade. Both of those sectors also had bright prospects.

“It’s a train wreck waiting to happen,” said one longtime trader at a mid-sized Wall Street firm.

And if fertilizer was not a hot enough sector, one of the stocks in the sector is involved in one of the only other islands of strength in the stock market — alternative energy. Recently, Chile’s SQM took part in a conference on batteries for electric cars. In addition to fertilizer, the company makes the chemicals lithium carbonate and lithium hydroxide and says its committed to the “development of more efficient” hybrid and electronic cars.