CF Industries: A Fertilizer Company That Doesn't Stink

I was on Fox Business Network’s Happy Hour show last night. Co-host Cody Willard and I discussed the agricultural sector. Cody peppered me with questions about the sector, injecting his opinions that the sector may itself be overgrown.

My response was that I believe that seed companies like Monsanto (MON) are too richly valued and do not make compelling investments at this juncture. For the record, I have traded in and out of MON the past one or two years but have no positions at the current time.

On the other hand, I strongly support investing in fertilizer companies, my favorite one being CF Industries (CF). The fertilizer stocks are still trading at multiples below their growth rate. Furthermore, they have tremendous pricing power.

As of the taping of the show, CF was trading at 11 times full year 2008 earnings estimates. 2009 earnings growth is expected to be 33% according to analysts’ consensus estimates. Even if that growth rate is too high, CF deserves a multiple of more than 11 times earnings.

Disclosure: At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of CF --- although positions can change at any time.

Comments

[M1972]

It is understandable for the ferts stocks prices to have risen over the past year or so, as most of the fertilizer products have tripled/quadrupled in price. However, there is a serious lull in the current ferts markets. Phosphate prices have receded to the tune of $70 pmt, urea has come off from record highs a few months ago, MOP prices have been stagnating with new spot sales no longer being concluded at $100 pmt increments. It is tough to see what today's hype in ferts stocks are all about. One explanation is the lack of alternative investment targets. Financials? Real Estate? Consumer Staples? Technology? I did not think so either...

[Bear StocksReport]

MOS, AGU, SQM and POT also look good in the same industry as CF.
In other sectors, REXX, ANR, MEE, MCF and CNX appear attractive.

[startouch]

The hype in fert stocks is scary. However, of the three plant nutrients PNK, K=potassium is the most important and maybe the least abundant.
BHP and Anglo established huge land leases in Sasketchewan and are buying all they can get. See offer to buy Anglo for C$ 8.15. Anglo was trading at C$ 2.50 a few months ago. I am accumulating API -T on pull backs. They have large tracts in the potash sweet spot of Sask. adjacent to producing mines. There will be updated resource etimates this summer and a pre-feasibility study engaged in late 2008. Problem is the stock keeps running to fast. (C$4.75 end of March 08 - now C$ 9) Estimated NAV is presently C$ 9.50 to C$ 14 according to 'Genuity' and 'National Bank Financial'. Developing a mine as we all know takes 5-7 years and several billion $. They should have no problem finding a money partner or a suitor.