Planting a Seed in the Weak Equities Markets (CF, POT, MOS, MON, SYT, AGU, DBA, MOO)

While the debate over raising the US debt ceiling grabbed all the headlines for the past week or so, US equity markets have been facing other headwinds that haven’t lightened since the deal was reached. For proof, just look at the price of gold today, a new high above $1,675/ounce and silver prices also heading north, with a high so far today at $41.89. Commodity prices are mostly down, with WTI crude oil heading for $92/barrel. The dollar is also falling against the euro, the yen, and the British pound.

Overall weakness in US economic growth, combined with still shaky European sovereign debt and some slowing in the emerging markets have dampened enthusiasm for equities. The Dow appears headed for a ninth straight day of losses and the S&P 500 has posted a new low for the year. There have to be some winners among equities, don’t there?

One place to look is fertilizer companies. CF Industries Holdings Inc. (NYSE: CF) has been rising steadily for the past 52-weeks and is now about 90% higher than its 52-week low. The company’s trailing 12-month P/E ratio is 17.37, and its forward P/E is 9.98. The price/book ratio is at 2.5. CF Industries reports earnings tomorrow and analysts are expecting EPS of $5.87 on revenues of $1.76 billion. Three months ago EPS estimates were $5.39, so the bar has been set higher rather than lower.

CF Industries is just the top dog among several fertilizer companies that have experienced good growth in the past 12 months. Potash Corp. of Saskatchewan (NYSE: POT) has posted share price growth of nearly 60%, Mosaic Co. (NYSE: MOS) is up more than 40%, Syngenta AG (NYSE: SYT) and Agrium Inc. (NYSE: AGU) are both up more than 35%, and Monsanto Co. (NYSE: MON) has gained about 20%.

Global demand for food is high and rising, and increasing yields on available farmland is the quickest and cheapest way to get more food. These growth rates are, perhaps, too strong to be sustainable, but barring some enormous foul-up on the part of fertilizer makers, the upward trend in share prices is likely to continue.

For ETF investors, the PowerShares DB Agriculture ETF (NYSE: DBA) has posted a share price gain of around 28% this year, leading the Market Vectors Agribusiness ETF (NYSE: MOO) by a couple of percentage points of gain. DBA is down about -1% today, at $32.47, within a 52-week range of $25.45-$35.58. MOO is also down about -1%, at $52.07, in a 52-week range of $41.03-$57.93.

Paul Ausick