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

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  2. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  3. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  4. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  7. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  8. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  9. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  10. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
RELATED FAQS
  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

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!