This is a chemical manufacturing company that makes fertilizer. Right now, I like stocks that are in the agricultural market. That is because the world population is growing. It’s at 7 billion and growing faster than ever. The world needs more food.
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World Food Supply Has to Keep Up
Companies like CF Industries Holdings provide the fertilizers that the world’s food producers need to increase yields. The small farmers in places like China, Indonesia, Brazil and Africa will need to start using better techniques to grow more food. This is the most basic human need, and it is growing at an ever-increasing rate.
The Fundamentals
CF Industries has a low P/E ratio. It’s hovering around 8 right now. The average P/E ratio for S&P 500 stocks is 16. The average for the Dow is 13. That is an indication that this stock might be undervalued. But that is just a start. We need to look at their fundamentals now.
I like their growth rates. Sales grew 53.79% last year. Net profit before taxes grew 284.70% last year. Income grew from $349 million to $1.5 billion between 2010 and 2011.
Their 5 year revenue growth rate is 24.57%. Their 5 year EPS growth rate is 105.2%.
Net profit margins went from 17.34% to 43.39% last year. The average for the chemical manufacturing industry is 2.13%.
They also have a strong balance sheet. They have $1.2 billion in cash. Their debt to equity ratio is on the way down. It went from 1.16 to .97 between 2010 and 2011. The industry average is 2.40. Return on equity (ROE) is 33.85%. The return on assets (ROA) is 17.15%. The industry is at 14% and 8% respectively.
They are an $11.65 billion company, making them a large cap stock. That gives them a defensive component to this investment. The only downside is that their dividend yield is only .9%. But measured against the growth potential and the strength of their balance sheet, this is a very small downside comparatively.
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Disclaimer
Remember that investing is a very risky activity. You can lose all or most of your initial investments. Consult a licensed financial advisor before implementing any investment strategy. Historical performance is no guarantee of future performance. No one can accurately predict the future, at least not consistently over time. The writer of this article and owner of this website do not own any of the stocks mentioned in this post.
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