Five Undervalued Agricultural Chemicals To Buy

The agricultural chemicals industry is down by about 6.6% over the last 12 months, which makes the industry an interesting study from an investment point of view. There is a need to identify which companies in particular have just received a temporary setback and will soon be back on their feet, especially given the expected comeback of the international fertilisers market in 2016 on account of return of Chinese potash demand and better growth in South Asia, particularly in India, which is looking to optimize its food supply for its booming population. A helpful criteria in this matter is to seek which agricultural stocks are popular among hedge funds, since these professional managers spend a great deal of resources in researching the companies that they eventually choose to invest in. We have a compiled a list of five such companies, arranged according to their popularity amongst hedgies.

In the eyes of most traders, hedge funds are assumed to be underperforming, old investment tools of the past. While there are more than 8,000 funds in operation at present, Insider Monkey looks at only the aristocrats of this group, around 730 funds. Contrary to popular belief, Insider Monkey’s research revealed that hedge funds underperformed in recent years because of their short positions as well as the huge fees that they charge, not because they are not good at picking stocks on the long side of their portfolios. Hedge funds did in fact manage to outperform the market on the long side of their portfolios. In fact, the 15 most popular small-cap stocks among hedge funds has returned 102% since the end of August 2012, beat the S&P 500 Index by 53 percentage points (see the details here).

#5 Scotts Miracle-Gro Co (NYSE:SMG)

Investors with Long Positions (as of September 30): 27

Aggregate Value of Investors’ Holdings (as of September 30): $588.66 Million

During the third quarter the total number of hedge funds, among those that we track, holding Scotts Miracle-Gro Co (NYSE:SMG) in their portfolios increased by 5 while the value of these aggregate holdings appreciated by about 7%. So far this year the stock price of the $4.05 billion manufacturer of consumer lawn and garden products has appreciated by 5.8%. First Eagle Investment Management is the largest stockholder of Scotts Miracle-Gro Co (NYSE:SMG) within our database holding 5.77 million shares.

 

#4 Potash Corporation of Saskatchewan (USA) (NYSE:POT)

Investors with Long Positions (as of September 30): 31

Aggregate Value of Investors’ Holdings (as of September 30): $822.71 Million

The stock price of the $13.99 billion fertilizer company might be down by more than 51% so far this year, but that hasn’t scared away the smart money. During the third quarter, the total number of hedge funds invested in the company slightly increased by 1 while the value of their aggregate holdings slid by 9%, which was much less than the 37% fall in Potash Corporation of Saskatchewan (USA) (NYSE:POT)’s share price during this period. The world’s largest integrated fertilizer company just finished an $8 billion potash expansion that will increase capacity to 17 million tons by 2018. HSBC Securities recently upgraded the company to ‘Buy’ from ‘Hold’. Jim Simons‘ Renaissance Technologies owns about 5.13 million shares of Potash Corporation of Saskatchewan (USA) (NYSE:POT) valued at $105.38 million at the end of September.

 

#3 Mosaic Co (NYSE:MOS)

Investors with Long Positions (as of September 30): 39

Aggregate Value of Investors’ Holdings (as of September 30): $505.58 Million

While the total number of hedge funds long Mosaic Co (NYSE:MOS) dropped by eight during the July-September period the subsequent decline in the value of aggregate holdings was about $425 million. The stock price of the $10 billion miner of phosphates and potash has fallen by nearly 35% since the start of this year. The strong dollar and weak demand for agricultural products has hurt the company. However, despite the cyclically depressed environment, the company delivered EPS of $0.62 in the third quarter, which beat estimates by $0.10. This is an ideal entry point into Mosaic, which will see headwinds slackening in the coming year. Adage Capital Management, led by Phil Gross and Robert Atchinson, boosted its stake in Mosaic Co (NYSE:MOS) by 23% during the third quarter to 4.87 million shares.

 

#2 CF Industries Holdings, Inc. (NYSE:CF)

Investors with Long Positions (as of September 30): 60

Aggregate Value of Investors’ Holdings (as of September 30): $3.05 Billion

Although the total number of hedge funds with exposure to CF Industries Holdings, Inc. (NYSE:CF) increased by three during the third trimester, the value of aggregate holdings fell by 16% amid a 31% slump of the stock price during the same period. The $9.34 billion manufacturer and distributor of nitrogen and fertilizer products has a promising future as it has now gained access to European markets with the acquisition of the Netherlands-based nitrogen producer OCI N.V. Considering higher natural gas prices in Europe CF Industries Holdings, Inc. (NYSE:CF) can service its nitrogen customers in a less costly way. David Shaw‘s D.E. Shaw upped its stake in the company by 67% during the third quarter to 11.52 million shares.

 

#1 Monsanto Company (NYSE:MON)

Investors with Long Positions (as of September 30): 50

Aggregate Value of Investors’ Holdings (as of September 30): $1.91 Billion

During the third quarter the total number of hedge funds having Monsanto in their portfolios slid by 4 while the aggregate value of their holdings decreased by about $500 million on the back of a 20% depreciation in Monsanto Company (NYSE:MON)’s stock price during this period. Larry Robbins‘ Glenview Capital holds about 13.5 million shares of the company. Monsanto Company (NYSE:MON) placed a $46.6 billion takeover bid for the world’s largest pesticide maker Syngenta AG about four months ago. The company is now internally discussing if it should place another bid given that China National Chemical Corp. is also making a move for the company.

Disclosure: None