I was on Fox Business Network’s Happy Hour show last night. Co-host Cody Willard and I discussed the agricultural sector. Cody peppered me with questions about the sector, injecting his opinions that the sector may itself be overgrown.
My response was that I believe that seed companies like Monsanto (MON) are too richly valued and do not make compelling investments at this juncture. For the record, I have traded in and out of MON the past one or two years but have no positions at the current time.
On the other hand, I strongly support investing in fertilizer companies, my favorite one being CF Industries (CF). The fertilizer stocks are still trading at multiples below their growth rate. Furthermore, they have tremendous pricing power.
As of the taping of the show, CF was trading at 11 times full year 2008 earnings estimates. 2009 earnings growth is expected to be 33% according to analysts’ consensus estimates. Even if that growth rate is too high, CF deserves a multiple of more than 11 times earnings.
Disclosure: At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of CF --- although positions can change at any time
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