Make Money in Cash-Generating Fertilizer Stocks -- the Easy Way
Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the fertilizer industry to thrive as our global population grows and demands more food from farms, the Global X Fertilizers/Potash ETF (NYS: SOIL) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The fertilizer ETF's expense ratio -- its annual fee -- is 0.69%. That's a bit higher than the typical ETF's, but far lower than the typical stock mutual fund's. Note that the fund is fairly small, so if you're thinking of buying, beware of occasionally large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF is too young to have enough of a track record to assess. Even so, as with most investments, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
What's in it?
Several fertilizer companies had strong performances over the past year. Terra Nitrogen (NYS: TNH) , for example, surged 113%, buoyed in part by low natural gas prices, as its ammonia-based products are derived from natural gas. Its earnings have been growing even faster than revenue, and it sports a hefty dividend yield, recently around 6.7%.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. Agrium (NYS: AGU) was flat, but the producer of nitrogen, potash, and phosphate is upping its capacity by 50%, and some Wall Street analysts have high expectations for the company, issuing buy recommendations.
PotashCorp (NYS: POT) and Mosaic (NYS: MOS) fell by 23% and 29%, respectively, but also have plenty of potential. Both, along with Agrium, make up a three-company legal cartel that has locked in some high prices. Along with other fertilizer peers, they stand to benefit from countries such as India and China that have huge populations and great agriculture needs.
The big picture
Demand for fertilizer isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.
At the time this article was published Longtime Fool contributorSelena Maranjian, whom you canfollow on Twitter, owns shares of Terra Nitrogen, but she holds no other position in any company mentioned.Click hereto see her holdings and a short bio.Motley Fool newsletter serviceshave recommended buying shares of Potash of Saskatchewan. The Motley Fool has adisclosure policy.We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.