Hedge Funds Like These Agricultural Chemicals Stocks

Although potash and other nutrient prices have not done well over the past few years due to flagging demand from China and India, the long-term future for many agricultural chemical companies remains sound. With more and more people from the emerging world eating meat and the world increasingly running out of farm land, agricultural chemicals will be in strong demand for decades to come.

Given their attractive valuations, their sound long-term prospects, and the potential for M&A, Insider Monkey has put together a list of the smart money’s favorite agricultural chemicals stocks. Without further ado, let’s take a closer look at their five favorites from the sector, which are Monsanto Company (NYSE:MON), CF Industries Holdings, Inc. (NYSE:CF), Syngenta AG (ADR) (NYSE:SYT), Potash Corporation of Saskatchewan (USA) (NYSE:POT), and Mosaic Co (NYSE:MOS).

We believe that imitating hedge funds and other large institutional investors can be helpful in identifying stocks capable of outperforming the broader market. Through extensive research that covered portfolios of several hundred large investors between 1999 and 2012, we determined that following the small-cap stocks that large money managers are collectively bullish on, can generate monthly returns nearly 1.0 percentage points above the market (see the details here).

Fotokostic/Shutterstock.com

#5 Mosaic Co (NYSE:MOS)

– Number of Hedge Fund Shareholders (as of June 30): 19
– Total Value of Hedge Funds’ Holdings (as of June 30): $379.05 million
– Hedge Funds’ Holdings as Percent of Float (as of June 30): 4.10%

Although it isn’t part of any M&A talks at the moment, Mosaic Co (NYSE:MOS) will nevertheless benefit if Potash Corporation merges with Agrium Inc. (USA) (NYSE:AGU), as increased concentration typically gives producers more pricing power, which in turn generally leads to higher margins and increased cash flow. However, RBC stated at the end of August that the merger between those two was unlikely to solve the industry’s oversupply issues. Legg Mason Capital Management raised its stake in Mosaic by 73,277%  during the second quarter, to 1.7 million shares as of June 30.

#4 Potash Corporation of Saskatchewan (USA) (NYSE:POT)

– Number of Hedge Fund Shareolders (as of June 30): 32
– Total Value of Hedge Funds’ Holdings (as of June 30): $946.9 million
– Hedge Funds’ Holdings as Percent of Float (as of June 30): 6.90%

As mentioned previously, Potash Corporation of Saskatchewan (USA) (NYSE:POT) has recently held advanced M&A talks with fellow producer Agrium Inc. (USA) (NYSE:AGU). Although talks could fall apart at any time, the Bloomberg article does say that Potash and Agrium are considering a merger of equals that could be announced as soon as this week. Together, the two companies would own slightly over 50% of North America’s potash producing capacity and would have more pricing power than they otherwise would. The increased pricing could go a long way to restoring Potash’s quarterly dividend. The smart money was more optimistic on Potash in the second quarter. Of the 749 hedge funds that we track which filed 13F’s for the June quarter, the number of them holding Potash Corporation of Saskatchewan (USA) (NYSE:POT) rose by nine quarter-over-quarter to 32 at the end of June.

Hedge funds’ three favorite stocks in the agricultural chemicals sector are detailed on the next page.

#3 Syngenta AG (ADR) (NYSE:SYT)

– Number of Hedge Fund Shareholders (as of June 30): 33
– Total Value of Hedge Funds’ Holdings (as of June 30): $1.1 billion
– Hedge Funds’ Holdings as Percent of Float (as of June 30): 3.10%

Unlike the other stocks on our list, hedge funds are long Syngenta AG (ADR) (NYSE:SYT) mainly for arbitrage reasons. Earlier in the year, ChemChina agreed to purchase Syngenta for $43 billion in cash in a deal that is expected to close by the end of the year. Syngenta’s current market cap valuation is around $41 billion, giving the stock limited upside. Syngenta trades at a slight discount mainly due to the pending antitrust review by various regulators worldwide. U.S. regulators have given the deal the green light. 33 funds that we track had a bullish position in Syngenta AG (ADR) (NYSE:SYT) as of the most recent 13F reporting period, up by one from the end of the previous quarter.

#2 CF Industries Holdings, Inc. (NYSE:CF)

– Number of Hedge Fund Shareholders (as of June 30): 34
– Total Value of Hedge Funds’ Holdings (as of June 30): $832.24 million
– Hedge Funds’ Holdings as Percent of Float (as of June 30): 14.80%

Like other fertilizer nutrient producers, CF Industries Holdings, Inc. (NYSE:CF) shares rallied on August 30 when news broke that Potash Corporation was in merger discussions with Agrium. If a merger is struck, nutrient prices could rebound from their bear market, meaning CF Industries’ profits and cash flow would increase. An increase in cash flow would make CF’s annual dividend of $1.20, good for a 4.68% annual dividend yield, more sustainable. 34 hedge funds in our system were long CF Industries Holdings, Inc. (NYSE:CF) at the end of June.

#1 Monsanto Company (NYSE:MON)

– Number of Hedge Fund Shareholders (as of June 30): 87
– Total Value of Hedge Funds’ Holdings (as of June 30): $5.32 billion
– Hedge Funds’ Holdings as Percent of Float (as of June 30): 11.80%

Bayer’s bid for Monsanto Company (NYSE:MON) keeps going up. A few months after Bayer bid $125 per share for Monsanto, the German company upped its price again, this time to $127.50 per share. Given the increased price, the odds of a merger agreement are higher, as CNBC recently reported that Monsanto told Bayer that it was “close” in terms of its bidding price. Monsanto has also opened its books for Bayer so that the potential acquirer can conduct due diligence. Although some shareholders are pulling for a $130 per share or higher offer, there is a chance that Bayer may instead go hostile rather than go any higher or just walk away entirely. 87 funds in our database were long Monsanto Company (NYSE:MON) at the end of the second quarter, up by 36 funds from the end of March.

Disclosure: None

Create your own user feedback survey

Link to Survey Results