Readers of this space know that my investment bias is toward large-cap companies with demonstrated business models that have a competitive advantage in established markets, preferably with a favorable global trend as a support. Moreover, there are few more-favorable global trends than food production, and with the above in mind, Agrium is worth a review.Agrium (NYSE: AGU) is the No. 1 producer and seller of fertilizers in North America, including nitrogen, as well as potash and phosphate products.
The company has an 8-million-ton nutrient production capacity, but production is only half the equation: AGU also has more than 400 retail outlets in the U.S. and South America -- the back-end side of the revenue equation.
The top U.S. retailer of crop supplies, Agrium's products are also sold in Canada, Mexico, Brazil and Asia. Analysts really like AGU's plan to expand, and hopefully double, this $2 billion revenue stream within five years, stemming from emerging market demand. The Reuters F2008/F2009 EPS consensus estimates for AGU are $8.21/$9.53.
Agrium's stock has had a solid run in 2008, but the view from here is that rising food demand in emerging markets will keep pushing fertilizer prices up, which is good news for AGU: it's a long-term, global trend that shows little sign of abating in 2009 or 2010.
The risks? Analysts are keeping an eye on AGU's operating costs. Also, a pronounced, sustained global economic slowdown would hurt Agrium's results.
Stock Analysis: Agrium is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than two years should be rewarded from AGU's shares. More-cautious investors may wish to wait until Agrium pulls-back to $104-107, but keep in mind AGU may not retreat to that level. Sell / Stop Loss: $72.
Disclosure: Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.
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