Elevated grain prices, strong Chinese grain demand and rapidly depleting U.S. fertilizer inventories could all mean greater fertilizer demand and prices over the next year.

"While BHP's bid for Potash Corp. reminds us of the value of fertilizer companies' strategic assets, recent industry fundamentals suggest that the purchase offer was very optimistic," said Martin Roberge, portfolio strategist and quantitative analyst at Dundee Capital Markets.

Mr. Roberge is telling his clients to hold off on profit taking following the takeover offer from BHP Billiton for Potash Corp. Grain prices touched a 52-week high on the back of droughts in China and more recently Russia helping to create new demand for related products such as fertilizer.

"Not only do rising grain prices [year-on-year] bode well for future fertilizer stock price out-performance. But ensuing recovery in farmers' margins/incomes suggest more fertilizer usage going forward," said Mr. Roberge in a report.

Demand and supply fundamentals for grain prices have improved markedly in the second quarter of 2010 and North American large-cap fertilizer stocks should keep outperforming the market for the remainder of the year. Bottom line, stay overweight on fertilizer stocks. Mr. Roberge said.