- Fertilizer stocks rally due to strong agricultural markets and supply disruptions.
- Stocks remain cheap as traders and analysts do not believe that current financial performance is sustainable.
- There is a potential for multiple expansion in case analysts start to change their estimates for 2023 and beyond.
While S&P 500 is down by about 7% year-to-date, fertilizer stocks have rallied this year amid shortages and food inflation. As negotiations between Russia and Ukraine have stalled and agricultural markets prepare for a long conflict, fertilizer stocks remain in demand.
Nutrien , which produces potash, nitrogen and phosphate products, is already up by about 45% year-to-date. Analysts expect that Nutrien will report earnings of $13.68 per share this year, so the stock is trading at roughly 8 forward P/E, which is cheap for the current market environment.
The key question for Nutrien (and other fertilizer stocks) is whether the current performance will be sustainable. However, the current upside momentum in the agricultural markets is strong, so Nutrien should have a chance to move higher this year due to its current cheap valuation.
Mosaic has already enjoyed a very strong rally in 2022. However, the stock is still cheap at less than 7 forward P/E for 2022.
At this point, the market does not believe that Mosaic will be able to show similar results in 2023 and beyond. However, the current crisis may be structural, and fertilizer prices may stay elevated for years to come, which will be bullish for Mosaic.
The big picture is similar for CF Industries. The stock has received strong support at the start of this year, but it is still trading at 7 forward P/E as the market does not believe that current performance will be sustainable.
However, the current disruptions may prove to be more significant than previously expected, and analysts will be forced to update their estimates for 2023, which would be bullish for CF Industries and other fertilizer stocks.
For a look at all of today’s economic events, check out our economic calendar.