Will Fertilizer Stocks Weather the Storm?

The conflict in Ukraine has had a direct impact on fertilizer stocks. Eastern Europe is a wheat belt and a significant fertilizer exporter. The war has escalated the price of wheat and also that of fertilizers, both of which are significant imports for the U.S.

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IBD readers, therefore, may not be surprised to find chemicals and agricultural fertilizers companies Sociedad Quimica y Minera de Chile (SQM), Mosaic (MOS) and CF Industries (CF) in the list of elite growth companies, the IBD 50.

The highly selective computerized list includes stocks that have strong technical ratings and have been showing strong fundamentals in both the most recent quarters and over the past several years. All three stocks have Composite Ratings above 90. Their SMR Rating of A reflects a strong record of sales growth rate, profit margins and return on equity.

While the ratings show strength, future quarterly results will show how these companies navigate through the war-induced macroeconomic headwinds.

Top Rated Fertilizer Stocks

CF Industries ranks first within the IBD Chemicals-Agriculture group, according to IBD Stock Checkup. It has a near-perfect Composite Rating of 98. Its perfect EPS Rating of 99 and Relative Strength Rating of 97 also indicate the stock’s technical and fundamental strength. The stock was an IBD Sector Leader earlier this month due to outstanding earnings and sales growth in recent quarters and strong fundamental and price-performance measurements.

CF manufactures and distributes nitrogen fertilizers and serves industrial and agricultural customers.

Second quarter revenue was $3.4 billion, jumping 113% vs. a year earlier. Earnings soared 440% to $6.21 a share, according to MarketSmith data.

The fertilizer stock has created a second-stage consolidation with a buy point of 113.58.

SQM Stock Action

Sociedad Química made the IBD 50 on Aug. 18 and ranks fourth in the group. The stock has a strong Composite Rating of 97.

SQM produces and distributes fertilizers, potassium nitrate, iodine and lithium chemicals.

The stock has been building a new base with a buy point of 115.86. The stock is on a four-day losing streak. Investors should wait to see signs of support and watch for any pattern that will give a clue about revised buy points.

SQM announced its first half 2022 results on August 17. Earnings of $5.80 were higher than 55 cents reported for the first half of 2021. Revenue was $4618.6 million

For its second quarter, revenue soared 342% to $2.6 billion compared to US$588 million during the second quarter of 2021. Earnings of US$3.01 per share increased 871% compared to 31 cents during the same quarter in 2021. The fertilizer stock’s earnings have grown in triple digits over the past four quarters, according to IBD MarketSmith. Its next earnings is due November 18.

Rough Sell-Off

SQM suffered a tough week, falling nearly 17% in very heavy turnover. Shares also sank below the 10-week moving average. You’d prefer to see such a stock trade tightly and see quiet volume after it has rebounded off the base’s low and climbed back near the base’s left-side high. The stock may need a lot more time to work on a higher-quality base and stage a terrific breakout.

Fertilizer stock Mosaic joined the 50 on Aug. 2. Its Composite Rating and Relative Strength Rating of 94 indicate continued technical and fundamental strength in a tough environment. Its EPS Rating lags at 81, as evidenced in its second-quarter earnings of $3.64 on revenue of $5.4 billion; the results fell well below expectations.

Mosaic produces and markets concentrated phosphate and potash crop nutrients. The stock is trading well below the peak of its current deep cup pattern. More work is needed on the right side of the pattern.

Follow Vidya on Twitter at @IBD Vidya for more stock market news and news on growth stocks

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