2 Low-Cost Energy Beneficiaries From This Week's Barron's

Includes: CF, UNP
by: Bret Jensen

Barron's had an interesting cover story this weekend on how low domestic natural gas prices are reverberating across the economy and helping firms in a variety of industries lower their costs and compete better on a global basis. It also speculated that this secular development will start to bring manufacturing jobs back home over the coming years. It provided 8 stocks that should benefit from this expansion of low cost domestic fuel sources. Here are two of those stocks I like at these levels.

CF Industries Holdings (NYSE:CF) manufactures and distributes nitrogen and phosphate fertilizer products

4 reasons CF has upside from $229 a share:

  1. Over 50% of its operating costs consist of natural gas and it is spending almost $4B to expand nitrogen capacity in a vote of confidence in agricultural demand.
  2. The company has tripled operating cash flow over the last three years and the stock sells at 7x operating cash flow.
  3. The stock is priced at under 9x forward earnings and consensus earnings estimates for FY2013 moved up nicely over the past three months.
  4. The stock is selling near the bottom of its five year valuation range based on P/E, P/CF and P/B. CF sports a five year projected PEG of under 1 (.82)

Union Pacific Corporation (NYSE:UNP) provides rail transportation services throughout its approximate 32,000 miles of rail network in North America.

4 reasons UNP provides value at $134 a share.

  1. The railroad is less exposed to coal and more exposed to some of the sectors that should be strong in an environment with low energy costs (Chemicals, autos, steel and fertilizer).
  2. Revenues should grow between 5% to 7% annually over the next two fiscal years and UNP has a five year projected PEG of less than 1 (.98).
  3. The stock yields 2% and the company has more than tripled its dividend payouts over the past six years.
  4. The company has almost doubled its operating cash flow over the preceding three years. Credit Suisse has an "Outperform" rating and just raised its price target to $159 from $156 a share.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.