2 Fertilizer Stocks to Buy on the Dip
Tight supply and surging energy costs caused fertilizer prices to soar last month. Furthermore, advanced farming techniques and the increasing use of bio-fertilizers are driving the growth of the fertilizer...
Tight supply and surging energy costs caused fertilizer prices to soar last month. Furthermore, advanced farming techniques and the increasing use of bio-fertilizers are driving the growth of the fertilizer industry. Therefore, we believe recent price dips could be an opportune time to bet on fundamentally sound fertilizer stocks CVR Partners (UAN) and Intrepid (IPI). Read on.
Surging energy costs, scarcity of supply, imperfectly competitive and shallow market structure and trade policies have driven fertilizer prices near-record highs this year. According to a report by DTN, the average price of nitrogen, which is the most widely used category of fertilizer, was $1,308 per ton for the first time ever last month.
Furthermore, the World Bank reported that fertilizer prices on average would be 25% higher in 2021 than last year. In addition, the development of advanced farming techniques, expanding trade activities, and increasing use of bio-fertilizers are fueling the growth of the fertilizer industry. The global fertilizer market is expected to grow at a 4% CAGR through 2026.
Therefore, we think fundamentally strong fertilizer stocks CVR Partners, LP (UAN), and Intrepid Potash, Inc. (IPI) could be ideal picks now to capitalize on the industry’s solid growth prospects. The recent price dips in these stocks offer a perfect entry point to lock in potential gains in the coming months.
CVR Partners, LP (UAN)
UAN, together with its subsidiaries, produces, markets, and distributes nitrogen fertilizer products in the United States. The Sugar Land, Tex., company produces nitrogen fertilizer products at its two manufacturing facilities located in Coffeyville, Kans., , and East Dubuque, Ill. In addition, it offers ammonia products for agricultural and industrial purposes, urea and ammonium nitrate products to agricultural customers, retailers, and distributors.
UAN's net sales increased 82.1% year-over-year to $144.72 million in the third quarter, ended September 30, 2021. The company's operating income came in at $46.32 million, compared to a $3.11 million operating loss in the prior-year quarter. Its net income amounted to $35.03 million, compared to a $18.95 million net loss in the third quarter of 2020. Also, the company's EPS was $3.28, compared to a $1.7 loss per share in the year-ago quarter.
UAN's EPS is estimated to grow 8% per annum over the next five years. The stock has gained 563.9% in price over the past year and 383.7% year-to-date. It is currently trading 11.1% below its 52-week high of $87.2, which it hit on October 11, 2021.
UAN's strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
Also, the stock has an A grade for Growth and a B grade for Sentiment and Momentum. We have also graded UAN for Value, Quality, and Stability. Click here to access all UAN's ratings.
UAN is ranked #4 of 9 stocks in the A-rated MLPs - Other industry.
Intrepid Potash, Inc. (IPI)
IPI is a diversified mineral company that runs three solar evaporation mines in Wendover and Moab, Utah, and Carlsbad, N.Mex. The Denver, Colo., company produces and sells potash and langbeinite products and operates through three segments: Potash; Trio; and Oilfield Solutions. IPI also produces potash for the agricultural, industrial, and animal feed markets as a nutrient supplement.
During the third quarter. ended September 30, 2021, IPI's sales increased 55.3% year-over-year to $59.15 million. The company's gross margin came in at $10.61 million, compared to a $308,000 gross deficit in the third quarter of 2020. Its operating income amounted to $4.08 million, compared to a $7.75 million operating loss in the prior-year quarter. Also, the company's net income was $4.02 million, compared to a $10.18 million net loss in the year-ago quarter.
Analysts expect IPI's revenue to increase 23.9% year-over-year to $243.96 in its fiscal 2021. The company has surpassed the consensus EPS in three of the trailing four quarters. Its EPS is estimated to grow 231.1% in the current year. The stock has gained 143.8% in price over the past year and 67.6% year-to-date. It is currently trading 30.7% below its 52-week high of $52.9, which it hit on November 1, 2021.
IPI's POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. The stock also has an A grade for Growth and Momentum and a B grade for Quality.
UAN shares were trading at $78.64 per share on Tuesday morning, up $1.16 (+1.50%). Year-to-date, UAN has gained 425.80%, versus a 26.09% rise in the benchmark S&P 500 index during the same period.
About the Author: Priyanka Mandal
Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research.