10 Best Fertilizer Stocks to Buy According to Hedge Funds

Published on April 17, 2023 at 6:53 am by Fatima Farooq in Hedge Funds, News

In this article, we will be taking a look at the 10 best fertilizer stocks to buy according to hedge funds. To see more of these stocks, you can go directly to see the 5 Best Fertilizer Stocks to Buy According to Hedge Funds.

In 2022, global fertilizer prices had hiked to near-record levels, which spelled trouble for crop production in 2022 and even in 2023. With the Russian invasion of Ukraine, the limited and expensive supply of fertilizers was damaged further, resulting in shortage concerns through 2022 and well into 2023 as well. Such concerns are unsubstantiated, considering the fact that Russia is the world’s largest supplier of fertilizers. The country accounts for about 45% of the global ammonia nitrate market and 18% of the potash market, for instance. As a result, the global community is heavily reliant on Russian fertilizer products, a reliance they are attempting to let go of in light of the Russo-Ukrainian conflict.

Fertilizer Market Situation in 2023

According to the United States Foreign Agricultural Service, the US was able to avoid the surge in fertilizer prices in the aftermath of the Russian invasion because it had purchased most of its fertilizers from the country in 2021. However, this was expected to provide only temporary relief since the conflict is still ongoing. Despite this bleak outlook, the situation today has moderately improved. According to the World Bank’s Food Security Update from March 23, fertilizer prices fell from their 2022 peaks this March because of shifting supplies and trade linkages. Countries that had been heavily reliant on Russia before the invasion of Ukraine managed to find alternative sources for their fertilizer imports. For example, Brazil began increasing its potash imports from Canada, while Morocco began sourcing ammonia from Egypt and Saudi Arabia.

The US is also taking steps to increase American-made fertilizer production in 2023. The United States Department of Agriculture (USDA) announced a $29 million grant offer in March, which was focused on projects aimed at increasing American fertilizer production. Such a move is bound to bring American fertilizer companies like Archer Daniels Midland Company (NYSE:ADM) and The Mosaic Company (NYSE:MOS) on par with Canadian fertilizer companies like Nutrien Ltd. (NYSE:NTR), which are benefitting from increased supply demands. This grant is the first in an expected series of grants from the $3 billion fund the USDA currently holds for the promotion of innovative domestic fertilizer production capacity.

Impact of US Grants on American Fertilizer Companies

Several examples of American fertilizer producers demonstrate how the above-mentioned grants are already beginning to help US-based companies. Pursell Agri-Tech LLC, a manufacturer of controlled-release fertilizer (CRF) based in Alabama, has been offered $4.9 million to assist the company with working capital and to increase its inventory by 40,000 tons per year. Palindromes Inc., based in Missouri, has also been offered $4.9 million to expand its use of anaerobic digestion and renewable energy in the production, processing, and sale of climate-smart fertilizer. Finally, Perfect Blend LLC, based in Washington, has been offered $2.6 million to help the company expand its manufacturing and processing of raw manure and fish waste into fertilizer by using the company’s patented technology. The examples of these companies show the on-ground impact of the US government’s steps to increase domestic fertilizer production at a time when the fertilizer market is vulnerable.

These steps, which the US government began taking in September 2022, have already begun to make a difference in the American fertilizer market. In light of these developments, we have compiled a list of the best fertilizer stocks to buy today according to hedge fund sentiment.

Pixabay/Public Domain

Let’s now take a look at the 10 best fertilizer stocks to buy according to hedge funds.

Our Methodology

For our list below, we have selected fertilizer stocks, including nitrogen fertilizer producers and agricultural technology companies that are transforming the use of fertilizers today. These stocks are highly popular among hedge funds today, according to Insider Monkey’s fourth-quarter hedge fund data when 943 hedge funds were tracked. They are ranked based on the number of hedge funds holding stakes in them, from the lowest to the highest. They also have positive analyst ratings.

Best Fertilizer Stocks to Buy According to Hedge Funds

10. CVR Partners LP (NYSE:UAN)

Number of Hedge Fund Holders: 5

CVR Partners LP (NYSE:UAN) produces and sells nitrogen fertilizer products in the US. It is based in Sugar Land, Texas.

In the fourth quarter, CVR Partners LP (NYSE:UAN) reported net sales of $836 million compared to $533 million in 2022. This represents a year-over-year increase of 57%. The company’s operating cash flow has risen over the past two years. For example, in 2022 CVR Partners LP (NYSE:UAN) had an operating cash flow of $301 million, which was 10 times higher than the figure in 2018.

Citadel Investment Group was the largest shareholder in CVR Partners LP (NYSE:UAN) at the end of the fourth quarter, holding 68,400 shares in the company. In total, five hedge funds were long the stock, with a total stake value of $11.3 million.

CVR Partners LP (NYSE:UAN), like Archer Daniels Midland Company (NYSE:ADM), The Mosaic Company (NYSE:MOS), and Nutrien Ltd. (NYSE:NTR), is an exceptional fertilizer company that is popular among hedge funds today.

9. The Scotts Miracle-Gro Company (NYSE:SMG)

Number of Hedge Fund Holders: 27

The Scotts Miracle-Gro Company (NYSE:SMG) manufactures, markets, and sells products in the fertilizers and agricultural chemicals sector. It is based in Marysville, Ohio.

Gaurav Jain, an analyst at Barclays, holds an Overweight rating on The Scotts Miracle-Gro Company (NYSE:SMG) shares as of February 21.

The Scotts Miracle-Gro Company (NYSE:SMG) is among the largest global marketers of branded lawn and garden care products, with brands such as Scotts, Miracle-Gro, and Ortho falling under its wing. The company has immense growth potential, with company management expecting a free cash flow of $1 billion over the next two years.

Our hedge fund data for the fourth quarter shows 27 funds long The Scotts Miracle-Gro Company (NYSE:SMG). Their total stake value was $153 million.

Madison Funds, managed by Madison Investment Management, mentioned The Scotts Miracle-Gro Company (NYSE:SMG) in its fourth-quarter 2022 investor letter. Here’s what the firm said:

“Stock selection was the poorest for us in this sector. Two stocks in particular – Hain Celestial (HAIN) and The Scotts Miracle-Gro Company (NYSE:SMG) – while big winners for us in 2020 and 2021, hurt the portfolio in 2022.

While both companies were so-called COVID beneficiaries (businesses that benefited from consumers staying home and spending on their homes during COVID), we felt they possessed certain additional drivers that would maintain their fundamentals into 2022 and beyond.

Scott’s Miracle-Gro is arguably one of the great American franchises. The brand is synonymous with lawn care and pest control, has a dominant market share (~60%) with historically-impressive ~30% cash flow margins, and has the country’s largest Cannabis supply business. Scotts’ core business saw a significant windfall during COVID lockdowns. Lawn and garden care is not a growth business, and SMG dominance does not allow for much incremental gain in market share. However, our thesis was that even in a reopening scenario where lawn and garden businesses would revert to the mean, the cannabis market was poised for years of growth as more states legalized recreational use.

What we missed was the highly inefficient structure of the U.S. cannabis market. Currently, California, Colorado, and Michigan have the biggest and most mature markets. However, over the course of the last few years, several very large states and regions have voted to legalize recreational use, including New York, New Jersey, and Connecticut. The fly in the ointment has been Oklahoma, which is a medical marijuana state. Although recreational use is still prohibited, licenses to grow the crop were granted in Laissez Faire fashion to anyone willing to buy one. Oklahoma began to grow and cultivate the crop far in excess of their medical marijuana demand. That excess supply bled into grey markets across the country, devastating pricing for growers in other states. This glut put a near complete stop to capital spending on grow operations. With no new or incremental facilities coming on, Scotts’ Hawthorne business was cut in half from its peak in F21. This, of course, had a devastating effect on the stock.”

8. FMC Corporation (NYSE:FMC)

Number of Hedge Fund Holders: 33

FMC Corporation (NYSE:FMC) provides crop protection, plant health, and professional pest and turf management products. The company offers agriculture technology like its Arc™ Farm Intelligence platform and other precision agriculture solutions to ensure better crop protection as well.

On March 17, Tony Jones at Redburn upgraded FMC Corporation (NYSE:FMC) shares from Neutral to Buy.

Over 93% of FMC Corporation’s (NYSE:FMC) total revenue in 2022 was generated by its chemical products, such as fungicides and herbicides. The company beat its 2021 revenue in 2022 by 15%, while its gross margins increased by 8% between 2021 and 2022.

FMC Corporation (NYSE:FMC) had 33 hedge funds long its stock at the end of the fourth quarter, of which Citadel Investment Group was the largest shareholder, holding 1.04 million shares in the company. The total stake value in the stock was $563 million.

TimesSquare Capital Management, an equity investment management company, mentioned FMC Corporation (NYSE:FMC) in its fourth-quarter 2022 investor letter. Here’s what the firm said:

“Within Materials, FMC Corporation (NYSE:FMC) is an agricultural sciences company offering solutions in areas such as crop protection, plant health, professional pest, and turf management. The company delivered solid third quarter results that led to a 19% boost to its stock price. Management continues to view the outlook as favorable, underpinning strong demand. Inflationary pressures appear to be easing and supportive of margin expansion.”

7. Archer Daniels Midland Company (NYSE:ADM)

Number of Hedge Fund Holders: 40

Archer Daniels Midland Company (NYSE:ADM) procures, transports, and merchandises agricultural commodities and products such as fertilizers. It is based in Chicago, Illinois.

On April 13, analysts at BMO Capital reinstated coverage of Archer Daniels Midland Company (NYSE:ADM) shares with an Outperform rating.

Shares of Archer Daniels Midland Company (NYSE:ADM) have a five-year average forward P/E ratio of 13.6. Compared to this, the stock is trading at a P/E ratio of 11.7 as of April 16, showing that the stock is undervalued at the moment and has the potential to grow. In the fourth quarter, Archer Daniels Midland Company (NYSE:ADM) generated revenues of $26.2 billion, representing an increase of 13.6% year-over-year.

There were 40 hedge funds long Archer Daniels Midland Company (NYSE:ADM) in the fourth quarter, with a total stake value of $701 million.

6. Nutrien Ltd. (NYSE:NTR)

Number of Hedge Fund Holders: 40

Nutrien Ltd. (NYSE:NTR) distributes crop nutrients, crop protection products, and more. It is based in Saskatoon, Canada.

Benjamin Theurer at Barclays holds an Overweight rating on Nutrien Ltd. (NYSE:NTR) shares as of April 14.

The company’s quarterly report for the three months that ended this December show sales of $7.53 billion, an increase of 3.6% year-over-year. Nutrien Ltd. (NYSE:NTR) has a forward P/E ratio of 7.64 as of April 16, which is well below the industry average of 13.7, showing that the stock is also undervalued and hence a steal at the moment.

First Eagle Investment Management was the largest shareholder in Nutrien Ltd. (NYSE:NTR) at the end of the fourth quarter, holding 8.5 million shares. In total, 40 hedge funds were long the stock. Their total stake value was $755 million.

ClearBridge Investments, an investment management company, mentioned Nutrien Ltd. (NYSE:NTR) in its third-quarter 2022 investor letter. Here’s what the firm said:

“However, we believe this is exactly the kind of environment that separates the highest-quality companies from their peers and allows them to strengthen their competitive positioning. For example, Nutrien Ltd. (NYSE:NTR), a Canadian fertilizer company, was a top contributor during the quarter. While the war in Ukraine and economic sanctions on Russia have significantly reduced the output of two of the world’s largest agricultural producers, Nutrien has benefited from a strong global agricultural cycle and from farmers seeking to increase their output and capitalize on higher agricultural prices.”

Nutrien Ltd. (NYSE:NTR), like Archer Daniels Midland Company (NYSE:ADM) and The Mosaic Company (NYSE:MOS), is a fertilizer stock many elite hedge funds are piling into today.

Click to continue reading and see the 5 Best Fertilizer Stocks to Buy According to Hedge Funds.

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Published on April 11, 2024 at by Inan Dogan, PhD

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Published on April 29, 2024 at by Insider Monkey Staff

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