Best Three Stocks in Agriculture Chemical Space

Masam is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The shale gas helped the investors to make fortunes by investing in the Agricultural chemical space. The sharp decline in natural gas prices led to a heavy cut down in the raw material costs of these companies. However, many people in the market believe that these stocks have peaked and are destined to fall given the recent rebound in the gas prices. However, bulls have stressed upon the fact that it might be true that cheap raw material prices might have been priced in the stock, but improving North American agriculture fundamentals are still likely to push up the stock prices further. Well, I’d say they have got a point to make.

Agrium (NYSE: AGU)

The Street remains optimistic regarding the retail segment's potential to optimize its store footprint and further benefit from operating leverage on the back of strong North American agriculture fundamentals. The private label sales should also continue to benefit segment margins. Improvements in the global potash market and favorable North American nitrogen economics should support AGU's wholesale segment. It is interesting to note that Agrium is one of the very few in this space that possess the unique feature of crossing the whole agricultural value chain. The company is also planning to expand its urea capacity starting in 2014. And if that is not enough, the third largest global nitrogen producer also has a decent dividend yield of 0.9% to offer to its investors.

Monsanto (NYSE: MON)

Monsanto remains positioned to benefit from opportunities to enhance profitability on the back of further adaptation of stacked traits in the U.S. market in addition to the projected launch of higher margin products in the next two years. Increased biotech acres in South America with stacked traits and the potential for further expansion into Eastern Europe via Monsanto's hybrid seed portfolio should drive increased revenue and higher margins.

Monsanto has two segments: Agricultural Productivity (crop protection products, animal productivity, and environmental technologies) and Seeds & Genomics (seeds and related traits and genetic technology platforms). The Roundup herbicide is the core of Monsanto's Agricultural Productivity segment. Monsanto's heritage agricultural chemical business, comprised mostly of Roundup herbicide, is bottoming. Moreover, the experts like Monsanto's technology leadership position in seeds and believe the risk/reward is favorable. The Street is positive on the company's growth prospects as Monsanto's pipeline of agricultural biotech products is unrivaled by competitors.

Potash (NYSE: POT)

POT is well positioned to benefit from improvements in the global potash market, which should be driven by continued strength in Latin America and Southeast Asia. Potash contracts in India (likely in 1Q) and renegotiating gas contracts with Trinidad should act as additional tailwinds for '13. With over 80% of planned CAPEX spending complete, Potash is well positioned to return cash to shareholders in the event a deal with ICL (Israel Chemicals) is not announced.

The shares got a hit after the company missed both its earnings and revenue estimates on Jan. 31. The shares are down 12% since the earnings release. I believe this is a good entry point for investors.

Foolish Bottom Line

The whole note focuses on the fact that despite a strong 2012, three of these stocks are still expected to see a rally in 2013 given improving global agriculture fundamentals. 


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