Valero Energy Corporation (VLO), CF Industries Holdings, Inc. (CF): Are You Patient Enough to Invest?

Valero is still a good company to consider. Its debt load of 0.37 is manageable, its return on investment (ROI) of 12.8% is reasonable, and it is trading close to book value with a price to book ratio just over 1. Going forward, Valero Energy Corporation (NYSE:VLO) will be heavily exposed to gyrations in the energy markets, but it is still a strong U.S. refiner trading at a low valuation.

CF Industries Holdings, Inc. (NYSE:CF) is a major producer of nitrogen fertilizer. The world population keeps on growing, and this company helps to boost crop yields to ensure that the world’s food supply remains strong.

It is not hard to see why the market is pricing CF Industries Holdings, Inc. (NYSE:CF) at a P/E ratio of around 6. Natural gas is its main cost and driver of its margins. The price of natural gas has fallen, sending CF Industries Holdings, Inc. (NYSE:CF)’ earnings and stock price through the roof. Now, the number of rigs drilling for natural gas is down, and there are number of analysts saying that rosy numbers are creating a natural gas bubble.

Financially, CF Industries Holdings, Inc. (NYSE:CF) is on good footing. Its total debt to equity ratio of 0.28 and ROI of 26.2% are very strong. Even if natural gas prices rise substantially and its 32.5% profit margin takes a hit, the company will keep on producing fertilizer. The company is a value play; it just is not a necessarily stable value play.

Conclusion

Value investing works, but you need to have a long-term perspective. If you can invest for two or three decades, you have a great chance of making a positive return. A general investment like the S&P 500 depository receipts ETF is as close to a set-and-forget investment as is possible.

Taking value investing one step further offers a greater potential return with greater volatility. Valero Energy Corporation (NYSE:VLO) and CF Industries Holdings, Inc. (NYSE:CF) are two energy companies trading at low valuations. Both of these companies might face difficulties in the future, but that doesn’t mean that they will stop being profitable.

The article Are You Patient Enough to Invest? originally appeared on Fool.com and is written by Joshua Bondy.

Joshua Bondy has no position in any stocks mentioned. The Motley Fool owns shares of CF Industries Holdings (NYSE:CF). Joshua is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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