CF Industries Holdings, Inc. (CF): 1 High-Quality Stock to Put on Your Radar

Both CF and CVR see tremendous potential in the nutrient. While CVR Partners LP (NYSE:UAN) will soon start upgrading nearly all of the ammonia it produces to UAN, CF is setting up two UAN units at its main complex in Donaldsville, apart from five ammonia plants with UAN up-gradation facilities. As a bigger player, CF cannot only produce greater amounts of UAN but also command better prices.

In the most recent quarter, while CF realized 9% higher UAN prices, Rentech Nitrogen Partners LP (NYSE:RNF) and CVR reported 8% and 6% lower prices year over year, respectively. Since UAN makes up more than half of CF’s total sales volumes and its prices are heading north, investors can expect a good boost to the top line in the forthcoming quarters.

Better option?
CF Industries Holdings, Inc. (NYSE:CF) is not only the undisputed leader in the nitrogen space but also scores higher than Potash Corp./Saskatchewan (USA) (NYSE:POT) on several counts. Farmers in the U.S. have increasingly substituted nitrogen for potash over the past few decades. Subsequently, nitrogen prices have shown greater strength. In its most recent quarter, PotashCorp sold its namesake nutrient at 17% lower prices year over year.

Potash Corp./Saskatchewan (USA) (NYSE:POT) can still salvage some growth on the top line as it gets 30% revenue from nitrogen, but if the incremental revenue doesn’t convert into higher income because of rising costs, it’s useless. PotashCorp paid $6.1 per MMBtu of gas in the last quarter — that’s nearly twice what CF paid for gas. Severe supply disruptions from Trinidad, where PotashCorp sources gas, is to blame. Until the situation in Trinidad improves, PotashCorp will continue to feel the heat.

The Foolish bottom line
Leadership position, solid financials, good operational performance, and great returns make CF one of the best bets in the fertilizer industry. The stock has returned a staggering 148% over the past four years and currently trades at a paltry six times earnings. It’s time to get CF on your radar, especially if you are looking to invest for the long term.

The article 1 High-Quality Stock to Put on Your Radar originally appeared on Fool.com and is written by Neha Chamaria.

Fool contributor Neha Chamaria has no position in any stocks mentioned. The Motley Fool owns shares of CF Industries.

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