Monday, February 13, 2012

CF Industries (CF) 2012 Review

CF Industries (CF) manufactures and distribute nitrogen and phosphate fertilizers in North America.

Since going public in 2005, the company has grown profits from $.60 to $21.25 in 2011 and dividends from $.02 to $1.00 in the same time frame. It has earned between 12% and 20% return on equity. CF experienced a modest decline in earnings during the recent recession but is on track to return to it above average growth rate because:

(1) strong industry long term fundamentals driven by an improvement in diet as incomes rise in developing markets and the need by farmers to increase crop production per acre,

(2) rising market share,

(3) cost reduction as it consolidates its recent acquisition of Terra Industries,

(4) it has a significant cost advantage over foreign competition,

(5) falling natural gas prices, a key ingredient in the making of fertilizer.


(1) price competition with its domestic competitors,

(2) its business is concentrate with a few very large customers.

CF is rated A by Value Line, carries a 25% debt to equity ratio and its stock yields 1.0%.

Statistical Summary

Stock Yield Dividend Growth Rate Payout Ratio # Increases Since 2002
CF 1.0% 33% 7% 3
IND 2.1 11 35 NA

Debt/Equity ROE EPS Down Since 2002 Net Margin Value Line Rating
CF 25% 32% 2 25% A
IND 39 23 NA 12 NA


Note: CF stock made great progress off its November 2008 low, quickly surpassing the down trend off its July 2008 high (red line) and the October 2008 trading high (green line). Long term, the stock is in an up trend (straight blue lines). It is also in an intermediate term up trend (purple lines). The wiggly blue lines are Bollinger Bands. The Aggressive Growth Portfolio owns a 75% position in CF, having made a trading sale at $123 following the violation of the $131 support level (not my best trade). Shares would be Added at $117; the lower boundary of the Sell Half Range is $209.

Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 40 years of investment experience includes institutional portfolio management at Scudder, Stevens and Clark and Bear Stearns. Steve's goal at Strategic Stock Investments is to help other investors build wealth and benefit from the investing lessons he learned the hard way.