The fertilizer sector is starting to have nice upgrades from the analyst community in the last few days. Citi upgraded Agrium (NYSE:AGU) today to a "buy" as it believes nitrogen demand will be strong as farmers plan for a big rebound in the corn harvest next year. Wunderlich upgraded Intrepid Potash (NYSE:IPI) yesterday to a "buy" as they also see increasing demand. Both stocks are reasonably cheap and could have good runs if other analysts follow Citi's and Wunderlich's lead.
"Agrium Inc. (AGU) engages in the retail of agricultural products and services worldwide. The company operates in three segments: Retail, Wholesale, and Advanced Technologies." (Business description from Yahoo Finance)
4 reasons AGU is a solid play at $103 a share:
- Consensus earnings estimates for both FY2012 and FY2013 have gone up 8% to 10% over the last three months.
- The company has easily beat earnings estimates each of the last three quarters and sells at just over 10 times forward earnings.
- In addition to the Citigroup upgrade, Barclays initiated the shares as an "outperform" in Mid-August.
- The stock is selling near the bottom of its five-year valuation based on P/E, P/B, P/S and P/CF even after a nice run in the stock price since June.
4 reasons IPI still looks like a buy at just over $24 a share:
- The company sports a solid balance with almost 10% of its market capitalization in net cash.
- IPI is selling near the bottom of its historical valuation based on P/E, P/B, P/S and P/CF
- The stock has a five-year projected PEG of under 1 (.68), a huge discount to its historical average (2.1)
- IPI is selling at 9 times operating cash flow and it has more than doubled OCF over the last three years.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AGU over 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.