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TMFLegendPhoenix (28.50)

Great, Chewie, great! Always thinkin' with your stomach.

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September 26, 2011 – Comments (3) | RELATED TICKERS: TNH , CF

Many years ago I was hiking in the woods with some friends.  We eventually got lost (it was probably my fault - I have a notoriously terrible sense of direction).  While we were meandering about, trying to find our way, I noticed what smelled like a delicious roast.  Upon further investigation, it turned out that I was totally mistaken.  Ultimately, everything worked out fine but even to this day I'm embarrassed about how I thought there was a delicious roast just hanging out in the forest and that it was free for the taking.  Of course it's easy to admit things like "there's no such thing as a free delicious roast" and "if it seems too good to be true, it probably is," but in the excitement of the moment when you're presented with such an opportunity it's extremely tempting to go for it.

My pick for this week is Terra Nitrogen Company, L.P. (NYSE:TNH) at roughly $145/share.

I bought shares of Terra Nitrogen a few months ago and it had been one of my favorite stocks.  While the price was fast approaching $200/share I often lamented the small number of shares I had purchased.  All of a sudden I smell a delicious roast - shares of TNH had dropped by about 30% in the last couple of weeks; and I'm forced to recall the embarrassing episode in the woods.  Before I initially bought shares of Terra Nitrogen, my research began by asking "What's so great about this company?" this time around I've been trying to find out "What's wrong with this company?". My conclusion is: * This is the same company that I believed in when I first invested: 10% annual distribution, solid management and the intent to grow* The fertilizer industry is still poised to benefit from agriculture commodity growth as the world's population continues to expand.

* Although CF Industries Holdings Inc. (NYSE:CF) (Terra Nitrogen's general partner) probably has enough cash to buy the remaining 25% of TNH's shares they don't own (as stated in CF Industries SEC 10-Q filing) – they have not announced they plan to do so and I don't see why they would.


I'll leave you with an unconventional gaming strategy that I learned from an old pirate, "Let him have it. It's not wise to upset a Wookiee," apparently because Wookies have been known to pull people's arms out of their sockets when they lose.

I should disclose that I owned TNH and then I bought more before I posted this.

3 Comments – Post Your Own

#1) On September 26, 2011 at 3:31 PM, FleaBagger (28.16) wrote:

Isn't TNH an MLP? I think it's just an income stream based on one property, not an entire company. I'm not saying it's a bad investment, but it sounds like you're expecting growth, and TNH doesn't offer that except in higher production at the one facility it represents/higher prices. Other than that, it's stuck where it is.

Let me tell you a story. Before CF bought TNH's parent (TRA), I read where TRA's business, with its share of TNH's numbers and market cap backed out, was selling for about 2x earnings, so I bought TRA (the guy was writing about arbitrage, but I wanted a solid bet on fertilizer). TNH went up about 20-30% over the next few months, and with dividends, that was probably about 35%. TRA went up about 90%. TNH was good, but TRA, being vastly undervalued and positioned to benefit from TNH's success, was better. Then CF pissed me off by buying TRA, and I didn't feel like digging through all the manure to value CF, so I sold.

My point is, maybe digging through all the manure to figure out if CF is undervalued versus TNH would be worth it. 

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#2) On September 26, 2011 at 4:21 PM, TMFLegendPhoenix (28.50) wrote:

Thank you for the story and the advice, FleaBagger.

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#3) On September 26, 2011 at 4:27 PM, Mega (99.96) wrote:

Laugh it up, furball.

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