Two Macro Trends That Can Help You Profit Big
Soroush is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It’s never too late to be on the lookout for investing ideas. Though the S&P 500 Index has behaved like a seesaw during the first half of the year, there are still industries and stocks that have great upside potential. Ardent investors would be wise to continually monitor the latest macro events that may be affecting their portfolios. Here's a great place to start. In this particular article, I’ll discuss two key economic trends for 2012 and beyond, while pointing out a few stocks that may see their fortunes rise as a result.
Higher Food Demand
Climate change is here to stay, and along with it comes floods and droughts of increasingly larger proportions. In the States, the Midwest and Southwest have been hit with a particularly dry summer, wiping out nearly 10 percent of the year's corn crop. Continued supply uncertainties, along with the fact that world population is ever growing, point to higher global demand for food in the long run. In the financial world, companies that address the problem of food production stand to profit in the coming years, and you can too. One area that is crucial to this market is fertilizer production; here are two related stocks to hang your hat on, so to speak.
CF Industries Holdings, Inc. (NYSE: CF) manufactures and distributes nitrogen and phosphate fertilizer products to agricultural and industrial customers worldwide. Its Nitrogen segment sells ammonia, granular urea, urea ammonium nitrate solution, urea liquor, diesel exhaust fluid, and aqua ammonia. The Phosphate segment sells diammonium phosphate and monoammonium phosphate. CF Industries Holdings customers include cooperatives and independent fertilizer distributors primarily in the Midwest.
The company's stock currently trades at a price-to-earnings ratio (8.0X) below the ag-input industry's average (13.5X) and its own 5-year historical average (13.0X). This undervaluation seems unwarranted, as CF has grown its earnings at an average annual rate (21.9%) more than double the industry norm (9.3%), and competitors like Agrium (NYSE: AGU) (4.5%) and Potash Corporation of Saskatchewan (-1.5%). Moreover, the company has also seen its cash hoard quintuple since 2009; investors have yet to take notice, as its price-cash flow ratio (6.5X) is below the industry average (10.7X) and its aforementioned competitors. In the first quarter, CF reported earnings above the Street's estimates, and expects to finish 2012 with an EPS of $25.95 a share. If this consensus and its current valuation hold, CF will rise above $205 a share. It currently trades in the $190 range.
Speak of the devil, Agrium Inc. is the other main ag-input stock that should be on investors' radars. According to their website, the company engages in the retail of agricultural products and services worldwide. It operates in three segments: Retail, Wholesale, and Advanced Technologies. The Retail segment supplies crop nutrients, crop protection products, seed products, merchandise products, animal health products, irrigation equipment, and more. This segment markets its products and services through 1,177 retail outlets in the United States, Canada, Australia, Argentina, Chile, and Uruguay.
The Wholesale segment produces, markets, and distributes a range of crop nutrients, such as nitrogen, potash, and phosphate products for agricultural and industrial customers. This segment also owns and operates facilities that upgrade ammonia and urea to other products, such as urea ammonium nitrate solutions and nitric acid. The Advanced Technologies segment produces and markets controlled-release crop nutrients and micronutrients to the agriculture, specialty agriculture, professional turf, horticulture, and consumer lawn and garden markets. The company was formerly known as Cominco Fertilizers Ltd. and changed its name to Agrium Inc. in 1995. It was founded in 1931 and is headquartered in Calgary, Canada. From an earnings standpoint, shares of AGU are currently trading at a 30% discount relative to industry and historical averages. Analysts expect Agrium to finish 2012 with an EPS of $9.37. Assuming that this consensus holds, a fairly valued AGU would flirt with $100 a share. It currently trades just under $90.
Interest Rates Will Remain Low at Least Through 2014
The Federal Reserve has indicated that it will keep interest rates low at least through 2014, as seen here. This means that yields from fixed income instruments will most probably remain low and sideways, and thus, there is a global hunt for higher yields. Below are two such high-yield stocks that will be a good place to store your money in this low rate environment.
Main Street Capital (NYSE: MAIN) is an investment firm that provides long-term debt and equity capital to lower middle market companies. Main Street’s investments are made to support management buyouts, recapitalizations, growth financings and acquisitions of companies that operate in diverse industry sectors and generally have annual revenues ranging from $10 million to $100 million. Main Street seeks to partner with entrepreneurs, business owners and management teams and generally provides “one-stop” financing alternatives to its portfolio companies. MAIN has never cut its dividend during its existence, and has in fact increased it after the switch to monthly payouts in 2008. It currently pays 9.3% on its monthly dividend, so you cannot go wrong when you include this in your yield-seeking portfolio.
Enbridge Energy Partners (NYSE: EEP) is a “double whammy” for us because not only does this company pose to gain from the long-term trend in rising oil prices, it also offers a hefty 7% yield. According to their website, Enbridge transports and delivers energy through their pipeline networks, connecting vital sources of supply with refiners and consumers across the continent. They operate the world’s longest, most sophisticated crude oil and liquids transportation system, shipping more than 2 million barrels of crude oil and petroleum products every day. Their natural gas gathering and transmission system spans the continent, from Northern BC to the ultra-deep water of the Gulf of Mexico, moving billions of cubic feet of gas daily. In addition to moving energy to where it is needed, they also deliver energy directly to the people who use it, owning and operating Canada’s largest natural gas distribution company. Their portfolio of wind, solar, fuel cell and waste heat energy generation provides a broad green energy platform from which to grow.
While these are not the only macroeconomic headwinds that are circulating through the global economy, they are two of the easiest to make an investment play on. For more trading ideas in these uncertain times, visit WealthLift INSIDER today.
This article is written by Jason Ramos and edited by Jake Mann. They don't own shares in any of the companies mentioned above. The Motley Fool owns shares of CF Industries Holdings. Motley Fool newsletter services recommend PotashCorp. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.