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Tickers in this Article: POT, MOS, AGU, BG, CF, KFT, GIS, CPO
The run-up in fertilizer stocks from early 2007 to mid-2008 was nothing short of astronomical. Virtual unknowns such as Potash Corp., The Mosaic Co., CF Industries, Bunge and Agrium became Wall Street darlings almost overnight, fueled by the global commodities boom. Investors became intoxicated by the returns offered by these companies. At one point, Potash even had a larger market capitalization than McDonald's.

The Party Came Crashing To An End
Unfortunately, the old maxim "All good things must come to an end" proved especially true with fertilizer stocks. When the party ended, hosts Potash, Mosiac, Agrium et al disappointed their guests, the investing public. All five companies traded in the triple digits earlier this year, including Potash's brief flirtation with $250 a share, and all five now reside at prices not seen since 2006 or 2007. (No investor is flawless. Read about some common investing fallacies and how to avoid them in Learning From Others' Mistakes.)

Will There Be Another Fertilizer Fiesta?
At this point it's hard to forecast when, or even if, another run on these stocks will begin. Pressured by a slowdown in emerging market economies, the industry has been punished by investors during the 2008 bear market. That said, one can argue that fundamentals among fertilizer stocks remain strong. Agrium recently reported strong third-quarter results and gave positive guidance for the rest of the year. Potash also gave a fair forecast last month, though the company noted 2008 results will be in the low range of previous earnings expectations, which were between $12 to $13 per share.

Let's take a look at where these stocks have been and where they are now:
Company 52-Week High 52-Week Low November 18 Close
Agrium (NYSE:AGU) $113.88 $25.92 $31.39
Bunge (NYSE:BG) $135.00 $27.60 $39.52
CF Industries (NYSE:CF) $172.99 $37.71 $50.39
Mosaic(NYSE:MOS): $163.25 $23.96 $31.37
Potash(NYSE:POT) $241.62 $60.38 $69.94

Crunched By The Credit Crunch
The global credit crisis extended its clutches into the fertilizer sector with companies hurt by declining foreign currencies and farmers' inability to obtain loans to purchase more fertilizer. Bunge is one prominent example of how a slowdown in emerging markets such as Brazil can crimp an American company's bottom line.

Dependent on South America and other emerging markets for a fair amount of its sales, Bunge recently reported weaker Q3 earnings, down 33% to $234 million or $1.70 per share. Bunge also scuttled plans to acquire rival Corn Products International (NYSE:CPO), which will save the company an estimated $1.72 billion. Now could be the time to start nibbling at some shares of Bunge as the $5.3 billion company sports a trailing 12-month price-to-earnings (P/E) ratio of 3.5 and expects per share earnings to come in at a lofty $10.86. Investors would also garner a 2% dividend yield. (For more, see Analyze Investments Quickly With Ratios.)

The Bigger They Are, The Harder They Fall
Potash is the true behemoth of the fertilizer sector, and its fall from grace has been the most noteworthy among its peers. In the last six months, Potash shares have shed more than 60% of their value compared with about 40% for the S&P 500. Despite the rapid decline, Potash still sports a market cap around $20 billion and a share price close to $65. Although its P/E hovers around seven, it's difficult to consider Potash shares "cheap" at current levels.

For those keeping an eye on the fertilizer group and waiting to jump in, Potash is the stock to watch. The company is the 800-pound gorilla of the sector, and as it led the group up in the bull market, it will probably be the first to rebound given its stellar market position. The average one-year price target for the shares is $161.54, according to analysts polled by Thomson Financial Networks, so investors could lock in a tidy return by purchasing Potash here.

Mosaic is, by its market cap of more than $14 billion, the next-largest fertilizer company, and its fall of close to 75% in the past six months makes Potash's decline look tame by comparison. In dollar terms, Mosaic shares have shed more than $131 a share in the past year from a high of about $163 to the November 18 close of around $32. Those are grim details, to be sure, but analysts still expect Mosaic shares to surge past $74 in the next year. If they're right, investors have a potential doubler on their hands.

Not For The Faint Of Heart
Investors have a lot to consider before purchasing shares of fertilizer stocks. One has to keep an eye on both the developed world and emerging market commodities demand. The Reuters-CRB Index is one way to track commodity prices and view the purchasing practices of food companies such as General Mills (NYSE:GIS) and Kraft (NYSE:KFT), which may tell investors which commodities are in demand. (Read more on trading using commodity trends in Timing Trades With The Commodity Channel Index.)

At current prices, fertilizer stocks may best suit investors with longer time horizons. The intra-day swings in these stocks are violent, to say the least, with $3, $5 or higher moves being the norm. Leave the heartburn of trading these stocks to the pros, exercise some patience and you could be celebrating if these old leaders become new leaders when the market rebounds.

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