The industry is going through a reshuffling of assets put in motion by Monsanto's unsolicited bid for Swiss chemicals company Syngenta. The original offer was rejected flatly and a revised bid that included a breakup fee of $2 billion also has been rejected. As part of the deal Monsanto has offered to sell Syngenta's seed business to make the merger acceptable to antitrust regulators. Competitors DuPont Co. (DD), Dow Chemical Co. (DOW) and BASF (BAS) are standing by to scoop up the Syngenta seed business if the merger goes through. In the meantime, farmers are concerned about the deal and are set to oppose it.
So, what are the best fertilizer and chemical companies that are also highly volatile that investors should be buying? Here are the top three, according to TheStreet Ratings,TheStreet's proprietary ratings tool.
TheStreet Ratings projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.
Buying an S&P 500 stock that TheStreet Ratings rated a buy yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a buy yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.
Check out which fertilizer and agricultural chemical companies made the list. And when you're done, be sure to read about which biotech companies to buy now. Year-to-date returns are based on June 9, 2015, closing prices. The highest-rated stock appears last.CF data by YCharts
3. CF Industries Holdings, Inc. (CF)
Rating: Buy, B
Market Cap: $14.9 billion
Year-to-date return: 15.8%
CF Industries Holdings, Inc. manufactures and distributes nitrogen fertilizers and other nitrogen products worldwide. The company's principal nitrogen fertilizer products include ammonia, granular urea, and urea ammonium nitrate solution.
"We rate CF INDUSTRIES HOLDINGS INC (CF) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its solid stock price performance, expanding profit margins and largely solid financial position with reasonable debt levels by most measures. We feel its strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Compared to its closing price of one year ago, CF's share price has jumped by 30.02%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, CF should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- The gross profit margin for CF INDUSTRIES HOLDINGS INC is rather high; currently it is at 55.70%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 24.18% significantly outperformed against the industry average.
- Even though the current debt-to-equity ratio is 1.13, it is still below the industry average, suggesting that this level of debt is acceptable within the Chemicals industry. Despite the fact that CF's debt-to-equity ratio is mixed in its results, the company's quick ratio of 1.53 is high and demonstrates strong liquidity.
- CF, with its decline in revenue, slightly underperformed the industry average of 14.0%. Since the same quarter one year prior, revenues fell by 15.8%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- CF INDUSTRIES HOLDINGS INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, CF INDUSTRIES HOLDINGS INC increased its bottom line by earning $26.44 versus $24.63 in the prior year. For the next year, the market is expecting a contraction of 16.5% in earnings ($22.08 versus $26.44).
- You can view the full analysis from the report here: CF Ratings Report