Beyond the Oil Price Surge Lies a "More Explosive Winner": This Fertilizer Stock Unexpectedly Tops the S&P 500

While escalating conflict in Iran has sent crude oil prices sharply higher, capturing Wall Street's attention, other commodities have seen even more significant gains. This surge has propelled the stock of a previously lesser-followed company to the top of the S&P 500 index's performance rankings.

Shares of CF Industries Holdings Inc have climbed 20.7% this month, making it the best-performing stock in the S&P 500 for March. To describe CF Industries as a company that flies under the radar might be an understatement. Over the past 90 days, its average daily trading volume has been approximately 2.6 million shares, which is less than half the average daily volume for a typical S&P 500 component. Furthermore, with a market capitalization of $18.12 billion, the company ranks only 409th among S&P 500 constituents.

What is the primary reason for this sharp increase? The company produces fertilizer. Andrew Wong, an analyst at RBC Capital Markets, pointed out that the Middle East accounts for about 35% to 40% of global urea fertilizer exports, a proportion even higher than the region's share of global crude oil exports. Since the outbreak of conflict involving Iran, urea prices have risen by approximately 35%, while crude oil futures have increased by about 32%.

The Middle East also produces nearly one-fifth of the world's liquefied natural gas, a key raw material in the production of nitrogen fertilizer. Therefore, as Andrew noted, rising LNG prices increase the cost of producing nitrogen fertilizer, which also benefits CF Industries.

According to Mizuho Securities analyst John Roberts, the strength in CF's stock is not solely due to rising fertilizer and crude oil prices. He believes the stock is also benefiting from what is termed the "anti-AI HALO trade." HALO stands for "Hard Assets, Low Obsolescence risk." Roberts explained that this means the company is largely insulated from the disruptive impact artificial intelligence is having on many other sectors of the market, such as software, fintech, and IT consulting.