Agrium, Inc. (USA) (NYSE:AGU)

oversold fertilizer stock

Making a fertilizer basket of stocks for a long term play on nutrient depletion in farmland (as Jared Diamond predicted in "Collapse"). They are decently valued with single digit P/Es and have adequate interest coverage. Risks are that war/depression reduce population growth, or cheap inputs (e.g. natural gas) create an excess of supply.

I'd expect this stock to channel below $85.55 until June or July of 2012 where it will begin to breakout.

I like that AGU's business includes retail and services to farmers vs others who are primarily in mining/processing and distribution. This makes AGU in some respects a more diverse company.

single digit forward P/E.
Fertilizer (early food production chain) demand has to rise all over the world.

Just gaming the system: harvested a +7 score, while lowering my cost basis a few dimes.

$130 target

same reason i chose MOO... corn will prevail.

Industry is exploding now

I had owned AGU and CF before in MRLP. Sold both with trailing stop orders but am looking to get exposure back into fertilizer stocks. According to Yahoo! Finance, AGU has the best PEG ratio at 0.62 and Price/Sales ratio at 1.33.

Stats from MagicDiligence.com:

Results for ticker 'AGU' (Agrium Inc.):
Earnings Yield:   6.7%
MFI Return on Capital:   20.4%

MagicDiligence Research for 'AGU':

Research Available for AGU! (full membership required - upgrade here)

Instant Diligence:

The Earnings Yield of 6.7% is Average.

The MFI Return on Capital of 20.4% is Average.

Near-term Financial Health appears to be Very Good. The current ratio is 1.63.

Calculations:

(for quarter ended 2010-12-31)
Market Cap   =   Stock_Price * Shares
   =   87.58 * 158.00
   =   13837.64

Excess Cash   =   Cash - MAX(0; (Current Liabilities - Current Assets + Cash))
   =   543.00 - MAX(0; (4285.00 - 6994.00 + 543.00))
   =   543.00

Enterprise Value   =   Market Cap + Total Debt - Excess Cash
   =   13837.64 + 2540.00 - 543.00
   =   15834.64

MFI Invested Capital   =   Total Assets - Goodwill - Intangibles - Current Liabilities + Short Term Debt - Excess Cash
   =   12717.00 - 2463.00 - 619.00 - 4285.00 + 422.00 - 543.00
   =   5229.00

Earnings Yield   =   Operating Earnings / Enterprise Value
   =   1066.00 / 15834.64
   =   0.067 (6.7%)

MFI Return on Capital   =   Operating Earnings / MFI Invested Capital
   =   1066.00 / 5229.00
   =   0.204 (20.4%)

Nat gas prices will remain low for a while, yet, which Agrium uses to make nitrogen-based fertilizer

This is a simple macro play with some basic business understanding layered in.

The world demand for food is set to grow rapidly. As HUGE population areas in Asia (read China) continue their shift from a 200 years behind the time technology-wise agrarian society into a modern powerhouse, the previously poor are gradually adding disposable income. First thing bought after climbing out of near poverty is shelter and food. Result is that a huge portion of the world population suddenly becomes a market for food. But here's the thing - many of the best places to grow food are already running near capacity. There will be increased production in North America as prices for food commodities rise, but there will also be a next wave of food production to less ideal growing areas (many within the countries that need the food). The result is the need for better seeds and more stuff (fertilizer, potash, etc.) to improve the growability of lesser farmland. Because of this, I like the macro environment for all things food growing.

But why AGU specifically?

A couple reasons:
1) Despite a huge runup (about 100%) AGU is priced reasonably at about 13X 2011 earnings.
2) Their cost structure - A large portion of their revenue is from nitrogen fertilizer. A key input into making fertilizer is natural gas. Right now, natural gas prices in North America are running about half what they are in other places in the world. This gives AGU a HUGE cost advantage over European and other overseas competitors, and with the volume of shale gas the US is sitting on this is unlikely to change. It is important to understand that while oil is a worldwide market due to its easy portability, natural gas is still very much a regional market. While portable in liquid form, costs and limits to this make natural gas still very much a "where you find is where you have to sell it/use" market.

Note that I think you could also play the same macro story with the big potash suppliers (MOS, POT) or the farm equipment companies (CAT, DE).

Solid Company in a promising sector.

Improving outlook for agricultural related industries.

25

Canadian agricultural chemical company. Hopefully Canada's corporations will not be held as taxation hostages to the government when the debt crisis mounts, like those in the U.S. surely will. Using Greenblatt's calculation of Earnings Yield I get 3.62%, and ROIC is 11.9%. This is at a point where equities may not fall much further according to contrarians like Marc Faber. This is becoming his near term view, and has been his long term view. Others like Peter Schiff continue to hold it as a long term view. In my opinion, inflation is tightly coiled to occur unexpectedly.

When commodity prices go up, and they will, this stock will soar.

Crops are gonne go up

I just love agriculture...don't you?