(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Investors looking for value, and potentially huge profits, in the current expensive stock market might look at the potash stocks. Okay, potash stocks are boring, hardly as sexy the techs. But the prospect for explosive gains in potash stocks is hardly boring. Shares of CF Industries Holdings Inc. (CF), Mosaic Co. (MOS), and CVR Partners LP (UAN) could all be set to soar by roughly 30 percent or more in the next few months, based on technical analysis. The fundamental trends have been improving for the group, and are reflected in the bullish patterns seen in the charts.
Potash, in case you didn't know, is the ubiquitous ingredient used in agriculture globally to grow many of the foods we eat, and also in many industries.
Cowen analyst Charles Nievert noted noted after a recent trip to South America and meeting with agricultural companies that there could be significant crop shortfalls. Companies that produce potash and nitrogen, two compounds used in fertilizer, could be substantial beneficiaries.
Over the past 30 days, analysts' consensus earnings estimates have risen for CF Industries by nearly 81 percent to $0.98 for 2018, while Mosaic's earnings estimates were raised over 14 percent to $1.33 a share, according to YCharts.
CVR Partners could be the stock that see the most significant gains, potentially rising to $4.90 from its current price of roughly $3.65 – an increase of nearly 35 percent.
The hourly chart below shows the stock putting in a strong double bottom pattern from $2.60 to $2.90. Additionally, the chart indicates that the next meaningful resistance level comes up at the $4.90 level. (See also: Analyzing Chart Patterns: Double Top And Double Bottom.)
CF Industries could also see its stock surge, with this one rising to nearly $51.50 from its current price around $39.80 – an increase of roughly 30 percent. The stock has been trending higher now since August of 2017 after breaking out of a period of sideways consolidation. The next meaningful resistance level on the chart comes around $51.50.
Mosaic could see its shares rise about 29 percent, from approximately $26.80 to $34.50. Like the other stocks, shares of Mosaic have been trending higher for some time, with little resistance until reaching a price of $34.50.
All three stocks' future success will be heavily dependent on the need for fertilizer and just how lousy the crop shortfalls in South America may end up being. Should they turn out to be not bad, it could lead to analysts reversing course and reducing their estimates, and that could result in share prices falling.
For now, the industry trends and the need for fertilizer could see these three stocks rise significantly over the next several months.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.