It has been a turbulent and interesting last week or so in the market. This week looks to be more of the same judging by Monday's sell-off. One thing I have noticed over the last few trading sessions is that the long suffering fertilizer makers are outperforming not only the overall market (see chart), but one of the few cyclical sectors that are behaving well. Based on their cheap valuation, I believe this could be the start of a larger move higher. Here are my two favorite picks in the sector.
4 reasons Potash Corporation of Saskatchewan (POT) is a long term bargain at just $41 a share:
- POT is selling near the bottom of its five year valuation range based on P/S, P/E, P/CF and P/B.
- The stock has a five year projected PEG of under 1 (.89) and is selling at under 11 times forward earnings, a discount to its five year average (14.6).
- The company more than tripled operating cash flow from FY2009 to FY2011 and consensus estimates for FY2012 and FY2013 have stabilized.
- The median analysts' price target by the 27 analysts that cover the stock is $55 and Dahlman Rose just changed its rating on Potash from "Sell" to "Buy."
4 reasons the Mosaic Company (MOS) is a solid value at just $51 a share:
- The company has a solid balance sheet with over $2B in net cash on its books and sells at just over 8 times operating cash flow.
- Dahlman Rose just changed its rating on Mosaic from "Hold" to "Buy" and the median analysts' price target by the 12 analysts that cover the stock is $85 a share.
- Mosaic is selling at the bottom of its five year valuation range based on P/S, P/B, P/E, and P/CF.
- MOS is selling at around 9 times forward earnings, a discount to its five year average (13.2). The stock also has good technical support at just under these levels (see chart).
Disclosure: I am long POT.