Looking at CF Industries Holdings’ stock price over the last three years.

  • The chart shows the performance of fertilizer and agricultural chemical manufacturer CF, over the last three years
  • Since the stock’s most recent trough in October of 2020, it has exploded higher, rising 108%
  • We have been bullish on food & energy for myriad reasons, as explained in our white paper, quick take, and in a piece about the remarkable contrary indicator flags flying from magazine covers

CF Industries Stock: One of the Top Agricultural Stocks[1]

Please click here to see why our proprietary ranking model likes the stock. Below, find some simple reasons CF Industries might be one of the top agriculture stocks and fertilizer companies to invest in. CF focuses on making anhydrous ammonia and other inputs critical to supplying food products to a rising global population.

CF Absolute Performance over the Last Three Years

CF Industries: The Case for Investigation

The chart below shows the same chart as the one above – CF Industries stock price. The only difference? The chart below shows CF Industries’ price performance relative to the S&P 500. Despite the massive run since October 2020, it is still severely underperforming over the last three years.

CF Relative Performance vs SP500 over the Last Three Years

How badly has the stock underperformed? The chart below shows that if the S&P500 just stayed flat, CF would have to rise 40% to merely catch up with the broad index!

CF Absolute Performance over the Last Three Years

The data below is our Single Company Tear Sheet for CF. For all numbers, higher is better. The basics:

  • Valuation Quintile 5: CF is relatively cheap on P/B and S/EV. The company also has a respectable 2% dividend yield. FCF/EV is in the 79th percentile as the stock generates a solid 5.6% FCF/EV – a number that may be headed much higher on falling capex and a huge expansion in global natural gas spreads which could cause large earnings growth in our view.
  • Balance Sheet Quintile 3: CF has a middling score on balance sheet quality as they failed to use ample liquidity to pay shareholders via dividends and focused on pulling 2022 capex projects into 2021 – a situation we believe may reverse in the year ahead based on management’s discussion of Q2 results.
  • Earnings Quality 4: The stock has high-quality earnings with terrific scores on accruals and depreciation/CAPEX and generates solid operating margins. Overall, the company has average but respectable ROEs (14%) and ROAs (4%). Once again, management has pulled forward numerous maintenance and other capex programs in the interest of maximizing capacity in 2022.

CF’s cheap valuation, above-average earnings quality, a product that is critical to the global food supply, and possible leverage to soaring natural gas price spreads leads us to believe investors may be interested in doing further research on the stock despite it’s mediocre rank in our model.

CF Single Company Heat Map

Read on to see some notes from the firm’s shareholder presentation and find other resources on CF Industries.

Our stock charts seek to bring interesting companies to the attention of long-term investors like us. One of the items we find incredibly interesting about CF stock is the potential to capitalize on our much-discussed thesis on energy and energy stocks while also benefitting from a massive ESG tailwind. Due to the need for large amounts of natural gas to produce fertilizer, fertilizer stocks do not come to mind for most people working for a “green” future. Yet CF’s fertilizer products simply are not optional. They are essential to supplying the agricultural products and agricultural companies that feed the world.

Despite this, CF stock has engaged in a tremendous effort to go green. Their UK facility has moved almost entirely to green energy. Even more impressive is their commitment to a clean energy economy. From pages 24 & 25 of their Second Quarter 10Q:

Our mission is to provide clean energy to feed and fuel the world sustainably. With our employees focused on safe and reliable operations, environmental stewardship, and disciplined capital and corporate management, we are on a path to decarbonize our ammonia production network – the world’s largest – to enable green and blue hydrogen and nitrogen products for energy, fertilizer, emissions abatement and other industrial activities. Our nine manufacturing complexes in the United States, Canada and the United Kingdom, an extensive storage, transportation and distribution network in North America, and logistics capabilities enabling a global reach underpin our strategy to leverage our unique capabilities to accelerate the world’s transition to clean energy.

Our Commitment to a Clean Energy Economy

In October 2020, we announced that we are taking significant steps to support a global hydrogen and clean fuel economy, through the production of green and blue ammonia. Since ammonia is one of the most efficient ways to transport and store hydrogen and is also a fuel in its own right, we believe that the Company, as the world’s largest producer of ammonia with an unparalleled manufacturing and distribution network and deep technical expertise, is uniquely positioned to fulfill anticipated demand for hydrogen and ammonia from green and blue sources. Our approach will focus on green ammonia production, which refers to ammonia produced through a carbon-free process, and blue ammonia, which relates to ammonia produced by conventional processes but with CO2 removed through carbon capture and sequestration (CCS) and other certified carbon abatement projects. We announced an initial green ammonia project at our flagship Donaldsonville nitrogen complex to produce approximately 20,000 tons per year of green ammonia. Additionally, we are developing CCS and other carbon abatement projects across our production facilities that will enable us to produce blue ammonia.

In April 2021, we signed an engineering and procurement contract with thyssenkrupp to supply a 20 MW alkaline water electrolysis plant to produce green hydrogen at our Donaldsonville nitrogen complex. Construction and installation, which will be managed by us, is expected to begin in the second half of 2021 and to finish in 2023. The cost of the project is expected to fit within our annual capital expenditure budgets. We will integrate the green hydrogen generated by the electrolysis plant into existing ammonia synthesis loops to enable the production of approximately 20,000 tons per year of green ammonia. We believe that, when completed in 2023, the Donaldsonville green ammonia project will be the largest of its kind in North America.

KCR believes that CF’s exposure to secular tailwinds in energy and its potential to become a beneficiary of ESG means the share price may be undervalued. Over the short term the stock will likely be volatile but management’s comments and fiscally conservative policies, discussed briefly below, leave us with a positive view of the firm’s future.

Leveraging the spread in raw material prices between US and ROW:

CF stock is the low-cost leader compared with the competition in Europe and Asia and may be one of the best agricultural stocks to buy in the market. The spread between US and overseas input prices is an enormous tailwind for the company and is expected to persist well in 2023. The tight demand/supply situation for fertilizer is expected to persist (driven by tight grain supplies resulting in robust demand for fertilizer from India and Brazil). We have documented the tailwinds that drought and higher energy prices might imply for food prices and food stocks repeatedly, and CF may be a terrific way to play this theme.

This is helping to keep output prices elevated and margins very robust. The company estimates that every $25 increase in urea prices translates into $375 million of EBITDA. For context, the current price of urea is approximately $450 and the EBITDA in the most recent quarter was $596 million. So, the $25 increase in price would represent a 6% change from the current price, resulting in a 63% increase in EBITDA (assuming constant input costs).

As a sign of excellent stewardship, the company expects to use the cash flow windfall to pay down debt to under $3 billion. This will improve the health of its balance sheet and help it regain investment-grade status. The company also hopes to opportunistically buy back stock which, we believe, at current FCF yields of 5.6%, represent an excellent use of excess cash.

Summarily, the following make CF Industries an interesting candidate for research in our view:

  • Cost advantage driven by spread in input costs between the US and ROW which is expected to persist
  • Capital discipline focused on debt repayment and thoughtful capital expenditures
  • Tight demand/supply balance in the output markets providing scope for a rise in ASPs
  • Operating leverage that will benefit significantly from rising demand and ASPs
  • Double-digit free cash flow yields

Please see below for some interesting charts from CF Industries’ earnings presentation.

Quick Facts from CF Industries Q2 Earnings Presentation

Spread in Input Costs between US and ROW

Global Energy Price 2019 2021F

Secular growth in demand from India and Brazil

India Imports Good Monsoons and Farm Programs

As always, we encourage investors to do their own homework. CF has a number of moving parts and may carry unusually high risks due to its exposure to commodity, and other macro variables that their own management is candidly admits cannot be predicted.[2]

KCR is asked often “are cleantech stocks a short” but CF is not one of them.

You can find more information on CF stock, please visit their terrific CF Investor Relations page, where you will find a Calendar of Events, Corporate Profile, the current CF stock quote and CF Industries earnings and CF industries market cap. Please see below for some basic FAQs and related companies you may be interested in reading about.

Agriculture Stocks List: A Complete List from the Russell 1000

One of the most fascinating things in our view about CF stock, is that it is one of a very few actual opportunities to invest in a key component of basic food production. We have made the case for investing in stocks that make stuff you need since the start of 2021. The reasons are many.

But CF stock is a great anecdotal example of why. We believe CF stock is one of the best agriculture stocks out there. But in the entire Russell 1000, there are only five stocks that qualify as “Fertilizer & Agricultural Chemicals.” We list them here and each has a link to their investor relations tab:

FMC: FMC Corp, CTVA: Corteva Inc, MOS: Mosaic Co, SMG: Scotts Miracle Gro. Click here for: CF Industries Investor Relations

That means that the building block of human existence – fertilizer – has only five listed companies you can invest in! Again, while we may believe that CF stock is the best agricultural stock out there, with so few to choose from we could, of course, be wrong. Finding the best agricultural stocks might involve expanding the thought process to some peripheral plays like tractor companies and stocks that are suppliers to them. We have listed some that might be of interest to you below. Again we are not saying any of these are good investments, we are just providing their tickers and links to the investor relations page for your convenience:

DE: Deere & Co., CAT: Caterpillar Inc., CMI: Cummins Inc., CNHI: CNH Industrial, WAB: Wabtec Corp, ALSN: Allison Transmission Holdings

One of the oddities of what is going on in the world of food stocks is that there are well documented shortages of fertilizer due to a lack of available natural gas. We produced a brief and tight summary of that crisis in our recent work Protecting Capital Amidst War, Drought, Famine & Rising Food Prices. Yet the question remains: could the makers of North American natural gas, the critical input to making fertilizer, be some of the best agriculture stocks to invest in? You can read our free write ups no two such companies EOG Resources and Devon Energy as a starting point to your research process.

If you employ a quantamental approach to investing you might find our ranking models and other research offerings particularly helpful.

  1. As a reminder for our Financial Advisors: our models are available on a continuous basis, and most have been in production for over a decade.  If you are looking for simple, concentrated, low turnover, and tax efficient model portfolios we would like to talk with you.  KCR also offers a wide range of easy-to-use but sophisticated tools.  Our toolkits can help identify mispriced stocks with the best and worst risk/reward characteristics, estimate a stock’s duration and warn you when a company is engaging in low-quality accounting. Over the last 12 years, KCR has built and offers time-tested and class-leading products built by experienced and proven money managers for fixed to low prices.
  2. Kailash Capital’s sister company, L2 Asset Management, runs market neutral, long/short, large-cap, and mid-cap long-only portfolios with a value and quality bias.  L2 employs a highly disciplined investment process characterized by moderate concentration, low turnover, high tax efficiency, and low fees. While nobody can predict the future, we believe the recent resurgence in risk-adjusted returns seen across all products is the beginning of what may be a long period where speculation is punished, and prudence and patience rewarded.

[1] In KCR’s view

[2] Management discussion of Q2 results, they note that they use the energy strip as pricing is difficult to predict – this is a humility the KCR staff appreciates.  Since their Q2 presentation, the price of TTF gas has risen over 100% according to the CME – an outcome that may suggest significantly higher profits in the quarters ahead should spreads stay elevated.


The information, data, analyses, and opinions presented herein (a) do not constitute investment advice, (b) are provided solely for informational purposes and therefore are not, individually or collectively, an offer to buy or sell a security, (c) are not warranted to be correct, complete or accurate, and (d) are subject to change without notice. Kailash Capital, LLC and its affiliates (collectively, “Kailash Capital”) shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information herein may not be reproduced or retransmitted in any manner without the prior written consent of Kailash Capital. In preparing the information, data, analyses, and opinions presented herein, Kailash Capital has obtained data, statistics, and information from sources it believes to be reliable. Kailash Capital, however, does not perform an audit or seeks independent verification of any of the data, statistics, and information it receives. Kailash Capital and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your tax, legal, and accounting advisors before engaging in any transaction. © 2021 Kailash Capital, LLC – All rights reserved.

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October 8, 2021 |

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