Strong domestic and global demand and supply crunch is expected to drive fertilizer prices to historically high levels in 2022. A report by Texas A&M Agricultural and Food Policy Center predicts fertilizer prices will rise more than 80% in 2022. In fact, certain retail fertilizer prices have more than doubled over the past year, as of Jan. 19, 2022.
Supply disruptions and U.S. sanctions against Belarus have caused downstream potash, the most valuable fertilizer component, to hit a 13-year price high of $650 per tonne. Because food prices are expected to rise further in 2022 after hitting 10-year highs in 2021, fertilizer prices are expected to increase in tandem.
Given the backdrop, here are the fertilizer stocks that we think have significant growth potential: Nutrien Ltd. (NTR), Archer-Daniels-Midland Company (ADM), and Golden Agri-Resources Ltd (GARPY).
Nutrien Ltd. (NTR)
NTR in Saskatoon, Canada, is a leading provider of crop inputs, services, and solutions. It operates in more than 2000 retail locations in the U.S., Canada, South America, and Australia. The company provides nitrogen, potash, phosphate, and sulfate products for the crops. It also offers seeds, crop nutrients, and crop protection products.
Last month, NTR announced the completion of a cash tender offer to redeem up to $300 million of its outstanding debt securities. The company has also accelerated the pace of its share repurchases. "We utilized our strong free cash in 2021 to meaningfully strengthen our balance sheet, providing flexibility to grow the business and return cash to shareholders through the cycle," stated Pedro Farah, Nutrien's Executive Vice President.
NTR's sales increased 42.5% year-over-year to $6.02 billion in its fiscal third quarter, ended Sept. 30, 2021. The company's gross margin rose 112.5% year-over-year to 2.17 billion. NTR's adjusted EBITDA grew 145.1% year-over-year to $1.64 billion. And its net earnings improved 223.7% year-over-year to $726 million.
The $6.54 billion consensus revenue estimate for its fiscal fourth quarter, ended Dec. 31, 2021, represents 69.8% year-over-year growth. The $2.36 consensus EPS estimate for its fiscal fourth quarter indicates 881.7% year-over-year growth. Also, the company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in three of the trailing four quarters.
The stock has declined 6.9% in price year-to-date to close yesterday's trading session at $70.03.
NTR's POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
NTR has a grade of A for sentiment and B for Growth. Within the Agriculture industry, it is ranked #2 of 27 stocks. To see additional POWR Ratings (Momentum, Stability, Value, and Quality) for NTR, click here.
Archer-Daniels-Midland Company (ADM)
Chicago’s ADM is a leading nutrition and agriculture origination and processing company. It procures, transports, processes, and merchandises agricultural ingredients, commodities, and products in the U.S. and internationally. The company operates in three segments: Nutrition; Ag Services; and Carbohydrate Solutions.
This month, ADM partnered with Wolf Carbon Solutions in the decarbonization of ADM's footprint by constructing a pipeline. The initiative, as a part of its ESG strategy, is expected to give a competitive advantage to ADM over its peers and engage more customers who invest in sustainability.
Last month, ADM announced the acquisition of Flavor Infusion International, a leading provider of flavor and specialty ingredient solutions. ADM's flavor segment is a high-value segment, and the acquisition might further expand its capabilities in this segment and boost sales.
In its fiscal 2021 fourth quarter, ended December 31, ADM's revenues increased 28.4% year-over-year to $23.09 billion. Its gross profit increased 22% year-over-year to $1.65 billion. And the company's net earnings increased 13.8% from its year-ago value to $0.78 billion. ADM's adjusted earnings per common share increased 24% from the year-ago value to $1.50.
Shares of ADM have risen in price marginally over the past five days and closed yesterday's trading session at $72.27.
ADM's strong fundamentals are reflected in its POWR Ratings. The company has an overall rating of A, which translates to Strong Buy. It has a B grade for Growth, Value, Stability, and Sentiment. It is ranked #1 of 27 stocks in the Agriculture industry. Click here to see ADM ratings for Momentum and Quality.
Golden Agri-Resources Ltd (GARPY)
GARPY is an investment holding company based in Singapore that cultivates palm oil trees. It operates through two segments: Plantation and Palm Oil Mills; and Palm, Laurics and Others. The company operates in China, Indonesia, India, the rest of Asia, Europe, and internationally.
Last October, GARPY announced a joint venture with Bay Crest Management to manage and operate tankers for the freight business. Golden Agri and Bay Crest will contribute 51% and 49%, respectively to the joint venture. The initiative is expected to reduce GARPY's costs and boost profits.
In the fiscal 2021 third quarter, ended Sept. 30, 2021, GARPY's revenues increased 76.2% year-over-year to $2.83 billion. Its gross profit rose 162.1% from the prior-year quarter to $629 million. And the company's EBITDA increased 146% year-over-year to $305 million.
The stock has declined 9.3% in price over the past three months.
GARPY has an overall B rating, which translates to Buy in our proprietary rating system. GARPY has an A grade for Value and a B grade for Growth and Stability. Among the 27 stocks in the Agriculture industry, it is ranked #3. Click here to see the additional POWR Ratings for Momentum, Sentiment, and Quality for GARPY.
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NTR shares were trading at $70.27 per share on Thursday afternoon, up $0.24 (+0.34%). Year-to-date, NTR has declined -6.56%, versus a -7.63% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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