7 Commodity Stocks Worth a Look

Includes: HK, MON, MOS, NTR, PTR, SYT, UPL
by: Investment Underground

In a recent interview with Fox Business, investing legend Jim Rogers revealed his three favorite investment themes. Here's what he had to say:

“I am long commodities, long currencies, and short stocks. But we will see what happens. You should invest in only what you know, otherwise keep your money in cash. The reason people lose money is because they keep jumping around investing in things they don’t have a clue what they are doing. Normal people should just wait. Wait until there are good opportunities and take advantage of them. There are plenty of opportunities besides banks. Cotton is going through the roof, corn is making all time highs. Invest in farmers. Invest in agriculture. I think agriculture is going to be one of the great industries of our time.”

It's no surprise he's bullish on agriculture and commodities. He's been touting these sectors since at least 2009. If you think commodities are a good long term bet, we indentified seven stocks we think you should look into. Here they are, plus some commentary on each. As always, use the names below as a starting point for your own due diligence.

Petrohawk Energy Corporation (NYSE:HK): Based out of Houston, HK focuses on oil and natural gas E&P and operates primarily in Louisiana, Arkansas, and Southeast Texas. We think Petrohawk is an attractive buy. HK has been trimming the fat to reduce its debt and concentrate the company around the development of its most profitable holdings.

In the last year alone, the company has sold its remaining stake in KinderHawk Field Services LLC in Haynesville, and a minority interest in its midstream business in the Eagle Ford shale play, a divestment of more than $1 billion for the quarter. HK also recently acquired 325,000 acres in the Permian Basin. With natural gas prices nearly constant and the supply increasing with the implementation of more efficient technology, HK has realized that liquids look to be more profitable in the future.

Thus, it has consolidated a portfolio comprised of several leading positions in hot areas with potential to produce an abundance of liquids (such as the Permian Basin acreage and its 332,300 acres in Eagle Ford). A focused, midcap company with significant reserves and holdings in valuable areas? It appears as though HK could be a potential takeover target. And given its share price in the mid-$20 range and a low forward P/E ratio of 13, HK stock looks even more attractive.

While we think Petrohawk is a good play, we like GMX Resources (GMXR) better because the investment community has not yet appreciated GMX's move toward oil production.

Ultra Petroleum (NASDAQ:UPL): Ultra leases over 110,000 acres in the Green River Basin of Wyoming, and 480,000 over the Marcellus Shale in Pennsylvania. The Green River Basin, where UPL has significant experience producing gas and selling through the Rockies Express pipeline, is a promising multi-layer zone with deeper zones likely to add significantly to existing proven, and very valuable, reserves. UPL has well over 100 exploratory wells in the Marcellus with a third already producing gas for sale. Once natural gas prices firm, we expect Ultra shares to see considerable price appreciation.

The reason we like UPL? We think a buyout would come in around $10-11 billion including debt, or above $60 per share. Ultra is led by Michael D. Watford, a very solid manager in our opinion. Since 1999, he has served as the chairman, president and CEO. Mr. Watford has worked for a number of energy companies including Superior Oil (OTC:SIOR), Shell Oil (NYSE:RDS.A), Meridian Oil and Nuevo Energy. Before joining Ultra Petroleum, Mr. Watford was CEO of Nuevo Energy for 3.5 years where he drove the company’s growth from $200 million to over $1 billion in market value.

The Mosaic Company (NYSE:MOS): With a market capitalization just over $29 billion this giant of the fertilizer world is prepared to feed to the soil that grows the world's agricultural diet. What's more, it vertically integrates the production of two of the three core inputs, potash and phosphate, that go into its fertilizer product. Despite a very bullish run in the past year, as recently as late January, RBC Capital Markets reiterated its outperform rating for the company.

We believe that the pullback since late February through June has presented investors with a good entry point. Mosaic pays a token dividend of 20 cents per share each year. Shares trade at a modest multiple around 11-12x and forward growth rates are reasonable, and lend themselves to a PEG that hovers around 1.

We think that some investors are concerned about the distribution of MOS shares by Cargill, which is really a tax-free transaction for Cargill stakeholders. There was no real dilution but the influx of 115 million shares including the overallotment weighed on the price. We consider it a buying opportunity.

Monsanto Company (NYSE:MON): Generating revenue in excess of $10 billion in 2010, this Midwest firm with global reach defined the space that it operates in: seed production. Seed production, specifically the R&D that goes into seed engineering, may well hold the answer to increasing crop yields. With fixed land inputs and growing demand it may well be the investment best aligned with alleviating hunger in the world. As we detailed here, we think Monsanto should be a name on investors' watchlists. Recent flooding on the Mississippi, will also benefit Monsanto because the company has quality short-season seeds once re-planting gets under way for washed out fields. This should manifest itself in quarterly earnings over the next few earnings cycles. Monsanto shares have hovered between $60 and $75 per share over the last half-year. We think shares should head higher on the back of positive macro news headlines that affect company sales.

PetroChina Company (NYSE:PTR): PTR is an oil and gas producer that operates within the People's Republic of China. PetroChina is involved in exploration, refining, and distribution of oil. It also has almost 20,000 service stations throughout China. In May, PetroChina announced that it plans to set up three operations centers in New York, London, and Singapore. This is a move that the company says will help it gain greater influence in the global market. It is the largest oil company in China and has a market cap of $254 billion.

PTR has a few things going for it that make it a solid bet. Fundamentally, PTR has a price to earnings ratio of 11.47 compared with an industry average of 15.76. It also has a PEG ratio of 0.97 compared with an industry average of 1.43. PetroChina currently has a 12.00 earnings per share ratio. Another plus for PetroChina is that it is currently yielding 3%. It has a semi-annual dividend payment and the last recorded dividend was $2.1112 in December, 2010. In addition, PetroChina has an operating margin of 12.3% compared to the industry average of 11.6% and a net margin of 9.1% compared to the industry average of 6.2%.

We think PTR is a better bet than stateside competitors Exxon (NYSE:XOM), Conoco (NYSE:COP) and Chevron (NYSE:CVX). It is a clear long-term winner relative to British Petroleum (NYSE:BP), which we think may encounter production access problems going forward given its recent history in the GOM.

Potash Corporation of Saskatchewan (POT) ): The eponymous producer of the fertilizer input, Potash maintains its number one position globally in the potash game. If you listen to the analysts over at UBS, which as with all analysts we would caution you to listen with prudence, Potash might as well be gold. Potash shares experienced a few stairstep leaps in price last year, but have fallen back a bit to $50.97.

Potash is used for corn crop production, among many other things; and corn prices have skyrocketed upwards as of late. Wet weather is delaying corn seeding, according to the department of Agriculture. In the intermediate run, farmers should be more willing to pony up for more potash given that potash broadcast on corn acres produces significant yield increases for farmers (at least in North America). The political class appears interested in continuing ethanol subsidies, and Potash is certainly to be a fat beneficiary of ethanol mandates for years to come.

Syngenta Corp. (NYSE:SYT): With over $4 billion of cash on hand and a one-year forward EPS projection of nearly 25% Syngenta is a solid name. This Swiss company competes in two major agricultural arenas: crop protection and seed production. Given that it is an underdog among the more established genetically modified seed producers, Monsanto and DuPont (DD), it may well be this mentality that drives it to continue its aggressive investment in R&D and succeed in closing that gap and sating global appetites.

Sygenta will benefit in the same manner as Monsanto as it has mid-season and early-season maturity crop seeds that will be purchased for replanting. The company is also spearheading an expansion in its genetic traits products with a new research facility at its Triangle Park operations. We think this is a good move, and anticipate more IP to come from Syngenta's R&D efforts.

Disclosure: I am short GMXR puts