We can’t do without food. Fertilizer companies and advanced agricultural technologies are absolutely critical in today’s world, and all investors would do well to have a stake in them, observes Stephen Leeb, editor of The Complete Investor.
Between 1960 and today, agricultural productivity has increased by more than 200%. In other words, the same amount of land now yields more than three times as much grain and cereals as in 1960. Credit goes to advances in technology, plant breeding techniques, and fertilizer use.
Fertilizers account for around 40% to 50% of the gains in agricultural productivity. Not only are fertilizers being used more, but there have been significant advances in the technologies that define how to use them most effectively.
Deere — a holding in our growth portfolio — leads in applying AI and other technologies within the ag space, and the world’s need to maximize crop yields will be a long-term boon to the company’s growth. The stock remains a strong long-term pick.
Trimble, which for now is on our watch list, meets our chief criteria for a tech recommendation in that it offers products essential to creating a sustainable world. Deere is one of Trimble’s top four customers, as is Caterpillar (CAT).
Three fertilizer stocks are on this list: CF Industries Holdings (CF), Mosaic (MOS), and Nutrien (NTR). The main difference between them is that each specializes in a different fertilizer, but even this distinction is blurred since the companies have many joint agreements that allow them to buy and sell among themselves to satisfy customer needs.
The fertilizer market is known for its cyclicality and in today’s world could get particularly volatile, though the swings will likely be around higher prices and have an upside bias.
Perhaps the most meaningful distinction is that Nutrien, the leader in nitrogen-based fertilizer, is more dependent on the volatile natural gas market. Still, in the interest of avoiding fraying nerves as much as possible, we’re keeping the stocks on our watch list. If we had to pick one it would be CF, as it is the most evenly centered among nitrogen, phosphorus and potassium.
The remaining two stocks on our list are the least cyclical. ICL Group (ICL) is a broad-based company that provides guidance to help farmers apply fertilizers in ways that optimize yields. Corteva (CTVA) is a leader in seed development, which offers perhaps the most important approach to enhancing food production. With debt more than offset by cash, it also has an exceptional balance sheet.
You could not ask for a better pedigree than that of Corteva, which was spun off from DowDuPont in 2018. Its most important part, Pioneer Hi-Bred, had been acquired earlier by DuPont and then merged with another agricultural chemical endeavor within the company before the spin-off.
This company began modifying plant genes in the 1920s and played a role in the Green Revolution. Its technology in fostering higher-yielding crops is unchallenged in today’s world. Corteva also provides a wide variety of crop protection chemicals. Rapid and sustainable growth is in the offing.