Hedge Funds Are Bullish About These Agriculture Plays

Severe drought and record heat is wreaking havoc on the mid-west food harvest. Lower farm yields and dwindling inventories have resulted in a 50% surge in corn prices over the past month with little relief in sight. But record food prices have created a boom for agricultural chemical companies. The sector is up 13% in the last month with traders are betting that higher food prices will boost demand for fertilizers.

The rally in the agricultural space has attracted the attention of institutional investors. Here are the top 4 fertilizer plays hedge funds are betting on:

Mosaic Co (NYSE:MOS)

Mosaic Co. (NYSE:MOS): On July 17, Mosaic reported their 4th quarter earnings. The company beat the Street’s expectations by reporting an EPS of $1.19, down 18% YoY due to weaker demand for potash and other agricultural products. However, management provided an optimistic industry outlook, stating that farmers will “have their foot on the accelerator” with regards to producing more grain due to record high agricultural prices.

Trading at 10.6x forward earnings, Mosaic is valued at a premium compared to its peers. With an estimated 5-year EPS growth rate of 8%, the stock trades at a rich 1.3 PEG ratio. However, Mosaic has the highest dividend yield in the industry at 1.75%.

In addition, several hedge funds have been building positions in Mosaic. Michael Kaufman at MAK Capital One doubled the size of his position during the 1st quarter bringing his total stake in the company to $77 million. Richard Chilton at Chilton Investment Company also increased his position by 30%, bringing his stake in the fertilizer company to $102 million. Billionaires Ken Fisher and Steven Cohen are also among Mosaic shareholders (see Steve Cohen’s top stock picks).

CF Industries Holdings (NYSE:CF): CF Industries has been the top performers in the fertilizer space. The stock is up 200% over the past 5 years and has returned 14% in the last month. The company reported record profits during the 1st quarter, posting an impressive 54% YoY increase in earnings to $5.54/share.

CF Industries is the cheapest stock in the fertilizer space. The stock trades at 8.3x forward earnings, below the company’s historical 10-12x forward multiple. The stock also has the lowest dividend yield in the industry at 0.81%.

Several hedge funds initiated positions in CF during the 1st quarter including Anthony Bozza at Lakewood Capital Management and Michael Messner at Seminole Capital. Billionaire Jim Simons’ Renaissance Technologies boosted its stake in CF by 62%. Simons’ hedge fund has the second largest position in CF among the 400 hedge funds we are tracking (see Renaissance’s biggest bets).

Potash Corp of Saskatchewan (NYSE:POT): Potash Corp, which was previously featured on Insider Monkey, posted sluggish 2nd earnings results on April 26th. The company reported a quarterly EPS of $0.56, missing the consensus estimates by $0.08. The company’s revenue was also down 20.8% on a YoY basis.

Potash Corp. is the most expensive stock in the fertilizer space trading at 12.3x forward earnings. However, analysts believe this premium multiple is justified due to the company’s exceptional growth profile. Potash Corp. is projected to grow EPS by 14% next year, giving the stock a 1.35 PEG ratio.

Several hedge funds have initiated positions in Potash Corp. during the 1st quarter including Paul Tanico atCastlerock Asset Management and Michael Karsch at Karsch Capital Management. The company is scheduled to release their 2nd quarter earnings after the bell on Thursday, July 26. Analysts expect a strong report with improved guidance on higher commodity and potash prices. Billionaires Richard Chilton, Steve Cohen, and James Dinan are among the top five holders of Potash (see Dinan’s bullish bets).

Agrium (NYSE:AGU): Agrium shares hit a new 52-week high following a strong earnings report on July 18th. Management raised their EPS guidance by 15% citing robust demand for agricultural products. The impressive results sparked a series of upgrades and target price hikes by equity analysts.

Agrium is one of the cheaper names in the industry. The stock trades at 9.2x forward earnings, slightly below the company’s 11.1x average forward multiple.

Hedge funds were actively building positions in Agrium during the 1st quarter including Wayne Cooperman at Cobalt Capital Management and Michael Messner at Seminole Capital. Value investor Joel Greenblatt and billionaire Israel Englander are among the hedge fund managers who initiated brand new positions in this stock (see Englander’s stock picks).

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Burger Kings: The 10 Most Expensive Burgers in the World

The 10 Most Ethnically Diverse Countries in the World

The 10 Most Exclusive Credit Cards in the World

The 10 Most Expensive Cruise Ships in the World

The 10 Fastest Supercomputers in the World

The 10 Best Countries for Doing Business 2015

6 Most Expensive Fruits In The World

10 Worst Airlines in the World

The 10 Biggest Tax Havens in the World to Stash Your Money

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!