The Worm Turns, and Fertilizer Stocks Suffer

Rob Curran has this report on the recent stumbles of the market’s favored high-fliers.

Remember the rally in commodity and agricultural stocks that would never end because the world was running out of land, energy and metals, and the greatest number of newcomers were moving into the middle classes since the industrial revolution?

Well, seems that was more of a second-quarter thing.

The winners of the second quarter, particularly coal and agricultural stocks, where many nimble traders took cover from the second-quarter sell-off, have flipped into the loser column in the first few sessions of the third quarter, and losses have mounted fast for some.

Shares of specialty chemicals companies have faltered in July.
Take Intrepid Potash, the tireless fertilizer maker stock that jumped 58% to $50.40 out of the IPO gate on April 22, then ran up another 50% to close at $73.23 on June 23. Tuesday, Intrepid traded as low as $47.21, and were down 7.8% on the day.

Charts of seed maker Monsanto and fertilizer makers Mosaic, Agrium, Sociedad Quimica y Minera de Chile and CF Industries –- even after a Monday upgrade for the latter by Credit Suisse — tell a similar story, wiping out nearly all of those second-quarter gains in a matter of days.

And, coal miners like Consol Energy and Massey Energy are more than 20% from their June highs. Oil and gas drillers like Range Resources and Devon Energy peaked before oil and gas, and they’re still getting beaten up.

“There’s a mini crash going on in these stocks,” William Lefkowitz, derivatives strategist for vFinance, said recently. Some funds “have been hiding in these other groups, and were lucky to stay away from the financials, and some of the tech.” To keep fat profits on these stocks year-to-date, those funds are now “bailing out very quickly,” he added.

Some, like Tobias Levkovich, chief investment strategist at Citigroup, have pounded the table about the bubblelike conditions in some of these stocks. Now it appears even those actively investing in those sectors have concerns about valuations. Even after the selloff, Consol Energy had a price-to-earnings ratio of 31 times forward 12-month estimates, higher than Google’s 29.5, and Intrepid Potash bore a 25-times price-tag.