Today’s recommendation comes from Richard Moroney, editor of Dow Theory Forecasts.
“Drought conditions in the U.S. grab headlines, but the news isn’t all bad for fertilizer maker CF Industries Holdings, Inc. (CF, $207). Yes, farmers with ravaged crops could cut back on their spending this autumn. But with the heat scorching corn and soybean crops, grain prices have jumped, a development that could spur many farmers to boost fertilizer purchases in an effort to enrich yields. According to Citi Research, fertilizer demand rose after droughts in 1983 and 1988.
“In the June quarter, CF earned $8.71 per share excluding special items, up 27% despite a 4% decline in sales. While sales and profits fell short of consensus estimates, shares rose on the news, probably because CF said strong demand and low supplies should support higher fertilizer prices into 2013. CF expects strong plantings over the next year, particularly in the U.S., Latin America, and India.
“Earlier this month, CF agreed to pay nearly C$1 billion for the 34% of an Alberta fertilizer plant it did not already own. The deal gives CF a stronger position in Western Canada, a key market where CF has had less exposure than its rivals. CF is a Focus List Buy and a Long-Term Buy.”
- Richard J. Moroney, CFA, Dow Theory Forecasts, August 8, 2012