CVR Partners LP (NYSE:UAN) primarily deals in urea ammonium nitrate solution, which is touted as the most lucrative of all nitrogen products. It is on track to upgrade its CVR Partners LP (NYSE:UAN) capacity by 50% apart from increasing DEF capacity by nearly 10%. Top draws: Easing pet coke prices and 7.2% dividend yield. Downside: Its bottom line dipped 15% last year on flat sales as CVR Partners LP (NYSE:UAN) prices remained soft, and the stock looks relatively expensive at 16 times P/E and 14 times P/CF.
Rank #3
Rentech is the other player to dip its fingers in the DEF opportunity. In its first full financial year (since listing) that ended Dec. 31, 2012, Rentech’s net income more than trebled to $107 million on the back of 31% rise in revenue. Its dividend yield stands at a handsome 10% riding on a payout of $3.30 per share last year. But it has also lowered dividend guidance for 2013 to $2.60 per share. As the youngest among all, Rentech doesn’t have much history either. Nevertheless, Rentech is significantly expanding ammonia, urea, and DEF capacity. Growth potential means the stock’s recent plunge calls for attention.
Rank # 2
Agrium Inc. (USA) (NYSE:AGU) can be a top beneficiary of an agriculture boom because its portfolio includes seeds and crop protection products as well apart from all three essential nutrients. Agrium Inc. (USA) (NYSE:AGU) reported around 8% improvement in both top and bottom lines last year. It is chalking out plans for a greenfield nitrogen plant in the corn belt while increasing potash capacity by 50%. Recently acquired Canada-based Viterra’s agriculture business should add significant value. At a P/E of just 10 times and P/CF of only 7 times, Agrium Inc. (USA) (NYSE:AGU) is a solid buy at the current price.
Rank # 1
Though Terra Nitrogen yields a handsome 7%, it is controlled by CF Industries. So Terra’s performance and growth depend largely on the parent. So let’s talk about CF. Boy, CF scores an easy slam dunk in this game. It is the largest nitrogen producer in North America, sports the best margins, boasts solid financials, reported record sales and net income last year, is set to own the biggest nitrogen facility in Canada, and is pumping $3.8 billion in expansions. For all this, CF’s stock is currently trading at a ridiculously low P/E of 7 times and P/CF of just 5 times. Such opportunities don’t knock on your door every day, seriously.
There’s more to come
So if it’s fertilizers, it will be nitrogen and CF for me. Though that doesn’t mean investors holding stocks of companies that don’t live by nitrogen are sitting on misfires. These stocks might have lagged their nitrogen counterparts, but each has its own catalysts, some that could mean better returns this year. I’ll soon present my take on some of these companies. Stay tuned.
The article The Ultimate Guide to Buying Fertilizer Stocks originally appeared on Fool.com is written by Neha Chamaria.
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