In this article, we discuss the 5 best fertilizer stocks to buy now. If you want to read our detailed analysis of these stocks, go directly to the 10 Best Fertilizer Stocks To Buy Now.
5. The Scotts Miracle-Gro Company (NYSE:SMG)
Number of Hedge Fund Holders: 30
Wells Fargo analyst Chris Carey recently initiated coverage of The Scotts Miracle-Gro Company (NYSE:SMG) stock with an Overweight rating and a price target of $180, noting that the firm was the largest supplier of hydroponics equipment and supplies in North America and had a stable consumer lawn and garden business. The analyst noted that the hydroponics business had gone from taboo to mainstream on Wall Street in recent years.
In early January, The Scotts Miracle-Gro Company (NYSE:SMG) announced that it would be purchasing Luxx Lighting, a provider of storage for dry plant products, in a deal worth around $215 million. The purchase will add $100 million in sales to the business of The Scotts Miracle-Gro Company (NYSE:SMG) on an annual basis.
Interest around the unique proposition of The Scotts Miracle-Gro Company (NYSE:SMG) in the plant sector has been rising in recent months. Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in The Scotts Miracle-Gro Company (NYSE:SMG) with 713,833 shares worth more than $104 million.
In its Q2 2021 investor letter, Madison Funds, an asset management firm, highlighted a few stocks and The Scotts Miracle-Gro Company (NYSE:SMG) was one of them. Here is what the fund said:
“In Consumer Staples on the other hand, Scott’s Miracle-Gro (SMG) was our worst performing stock, ironically after posting record results. There are a few factors at play here. SMG’s lawncare business benefitted immensely from the lock down and work from home, as homeowners spent more time at home and invested in remodels and upgrades which included their lawn and gardens. Furthermore, the weather was very supportive for lawn and garden season. However, stocks are forward looking vehicles and investors are betting that the best is behind Scott’s and reopening will mean less spending on lawncare. While it’s difficult to argue against a slowdown, we continue to like this dominant franchise for two reasons. First, home ownership has expanded and continues to expand, and second, Scott’s owns the Hawthorne franchise. Hawthorne sells lighting, nutrients and grow media into the fast growing commercial cannabis market. It is the country’s largest and most profitable cannabis supply vendor. Over the last 6 months, laws legalizing recreational marijuana use have passed in several states including New York, Connecticut, South Dakota, and Virginia. Meanwhile the most mature legal states like Colorado and California are still growing rapidly for Hawthorne’s products. The pullback in the stock has been dramatic and excessive, in our opinion. We believe a sum of the parts framework can yield great insight. The Hawthorne business is an effective duopoly with Hydro Farm (HYFM) – also a portfolio company. The market values HYFM at 5x revenue. If we apply the same multiple to Hawthorne’s revenue, this implies that the market leading Scotts’ Miracle-Gro franchise, with greater than 25% Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) margins, is valued at just 5x EBITDA.”
