Despite all of the volatility caused by Europe and the U.S. economic roller coaster, 2011 ended with the S&P 500 barely in the black. While it's no surprise to many investors that sectors like housing and finance were affected, fertilizer stocks were huge laggards in 2011 despite strong industry fundamentals. Those same fundamentals are likely to boost fertilizer company shares in 2012.

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

A Huge Disappointment
Despite a significant increase in earnings, shares in Potash Corp (NYSE:POT), the world's largest fertilizer company have been a huge disappointment to investors. The company earned $1.8 billion in 2010. For the first three quarters in 2011, net income has exceeded $2.4 billion. Yet, in 2011 shares were down about 20%. The same conundrum affected all the major fertilizer companies including Mosaic (NYSE:MOS) which was down over 30% in 2011 despite improving fundamentals. In 2011, Mosaic's largest shareholder, privately held Cargill, sold its majority interest in Mosaic. The addition of the public float likely placed downward pressure on the stock in 2011. CF Industries (NYSE:CF) one of the largest producers of nitrogen was up about 6.5% in 2011, a very acceptable return in light of the overall market performance. But, in 2010 CF earned approximately $350 million in net income. For the first nine months of 2011, CF has earned over $1 billion in net profit.

Setting the Stage
Such stellar profit growth in 2011 is setting the stage for excellent performance for fertilizer stocks in 2012. The underlying fundamentals remain favorable. Demand for agricultural commodities - corn, wheat and soybeans - remains strong as China's vast population will put a strain on grains. China's increasing meat consumption exponentially increases grain demand as it takes approximately six pounds of grains to produce one pound of meat. In addition to fertilizer companies, seed company Monsanto (NYSE:MON) could have a favorable 2012. Monsanto's disease and drought resistant seeds enable farmers to grow crops in the most difficult growing conditions. Regions like India and Africa, where water is scarce and temperatures can get high, benefit from Monsanto's seeds. Monsanto's shares ended the year relatively unchanged. (For related reading, see 2011 Look Back At Agriculture.)

The Bottom Line
Over the long-term, few industries offer the attractive returns available from fertilizer. Fertilizer, unlike oil, is without commercial substitutes. And fertilizers provide the world with its most fundamental need: food. Good economy or bad, the world will need more food, and, thus, more fertilizer.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Sham Gad did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  2. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  3. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  4. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  5. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  6. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  7. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  8. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  9. Stock Analysis

    Is Walmart's Rally Sustainable? (WMT)

    Walmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
  10. Stock Analysis

    GoPro's Stock: Can it Fall Much Further? (GPRO)

    As a company that primarily sells discretionary products, GoPro and its potential falls right in line with consumer trends. Is that good or bad?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center