Farmers all over the world have a daunting task ahead of them. Over the next 50 years they must produce more food than they have in the past 10,000 years, cautions Carl Delfeld, global growth stock expert and editor of Cabot Explorer.
The combination of a growing global population, a rising middle class hungry for more protein, fruit and vegetables, and less productive land has many asking how on earth we are going to feed everyone. For example, 1 pound of chicken requires 3 pounds of corn, 1 pound of pork requires 4 pounds of corn, and 1 pound of beef requires 7 pounds of corn.
In short, a growing global population equals higher demand for fertilizer products to boost crop yields. In addition to lithium, Sociedad Química y Minera de Chile S.A. (SQM) produces specialty plant nutrients, iodine, lithium, potassium chloride and potassium sulfate, industrial chemicals, and other commodity fertilizers.
SQM has long been a darling of global investors looking to Chile, a country I used to refer to as the “Star of Latin America” though it has unfortunately taken a sharp political turn. Branded as the face of a new Latin American left, Chile President Gabriel Boric was elected in a landslide after a campaign promising revolutionary change.
In reality, Boric wanted to keep Chile a mining power to help his green energy development plans. Demand for lithium is strong due to electric vehicle growth and lithium contributes about 40% of the company’s gross profits. Fertilizer ingredients supply another 40%, and iodine comes in at 18% of gross profits.
SQM has lithium plants in Chile and through a joint venture in Australia and it accounts for almost 20% of global lithium output. Lithium demand, sales, and prices have been going in the right direction and the Ukraine situation is crimping Russia’s fertilizer exports, which normally account for about 25% of world exports.
The company is also the world leader with a 46% market share of potassium nitrate, which is a chlorine-free premium product for plant nutrition. The company is also the world’s #1 producer of specialty chemicals.
Sociedad Química y Minera de Chile — a Latin American double play — had a stellar year in 2021, with revenue up 57.5% and net profits tripling over 2020. Global lithium demand exploded 55% in 2021 primarily due to it being a key ingredient for lithium ion batteries for electric vehicles.
In fact, the current consensus growth estimate for SQM this year calls for earnings-per-share growth of 127% with the long-term growth estimated to be around 40% if current trends hold. This stock has come back a bit recently, providing a reasonable entry point for aggressive investors.
