In the wake of the BHP Billiton's (BHP) failed $39 billion offer and its new hostile $40 billion takeover bid for Potash Corp. of Saskatchewan (POT), agricultural fertilizer companies, including CF Industries Holdings (CF), are starting to look pretty juicy to investors.

Fertilizer companies have been struggling during the past few years as cash-strapped farmers have been pulling back on their purchases, but the tide appears to be changing.

With rising prices for crops like wheat and corn, it is starting to look like it is going to be a really good year for U.S. farmers, which means they are going to have plenty of money to reinvest in new machinery and more fertilizer.

Analyst upgrades

• UBS upgraded CF Industries (CF) to neutral from sell. The firm cites valuation for the upgrade. In addition, UBS raised its price target on shares to $84 from $81.
• Baird upgraded Johnson Controls (JCI) to outperform from neutral and raised its price target to $42 from $33. The upgrade was based on improving margins, China growth, and upside from a cyclical recovery.
• Barrington upgraded G&K Services (GKSR) to outperform from market perform ahead of the company's Q3 results to reflect optimism regarding the company's operational turnaround. The firm set a $35 price target for shares.
• LaSalle Hotel (LHO) was upgraded to top pick from outperform at RBC Capital.
• Zimmer (ZMH) was upgraded to overweight from neutral at JPMorgan.
• Thermo Fisher (TMO) was upgraded to buy from hold at Jefferies.

CF Industries (CF - option chain) stock is trading lower today after the situation surrounding two takeover deals continues to get murkier. Agrium (AGU) announced this morning that CF's stockholders tendered 62% of their shares into a hostile takeover offer launched by AGU. AGU extended the offer, which originally was to expire yesterday, to December 18. Meanwhile, CF's board said that it does not believe that the tender results reflect stockholder support for Agrium's offer. At the same time, Terra Industries (TRA) is fending off a hostile bid made by CF. The uncertainty surrounding this situation is holding back CF shares and if you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on the stock.

This morning, CF opened at $83.60. So far today the stock has hit a high of $82.50 and a low of $84.48. As of 11:50, TRA is trading at $82.71, down $3.58 (-4.2%). The chart for CF looks neutral and S&P gives CF a neutral 3 STARS (out of 5) hold ranking.

Mosaic (NYSE: MOS), a producer of crop nutrients, closed at $41.35. MOS is presenting at Goldman Sachs Agriculture Biotech Forum on February 10. MOS is presenting at the Morgan Stanley Global Basic Materials Conference on February 18. MOS February option implied volatility is at 71, March is at 76 is below its 26-week average of 81, according to Track Data, suggesting decreasing price movements.

Terra Industries (NYSE: TRA), a nitrogen producer, is scheduled to report Q4 EPS on February 10. CF Industries (NYSE: CF) announced on January 16 an unsolicited bid for TRA, offering to exchange 0.4235 shares of CF for each share of TRA. TRA closed at $22.22. CF closed at $52.44. TRA February and June option implied volatility of 73 is below its 26-week average of 85, according to Track Data, suggesting decreasing price movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

CF Industries (NYSE: CF) shares are trading higher today as bio-fuel related agricultural futures, including corn and soybeans are soaring, which is pushing the fertilizer stocks higher. An analyst at Goldman Sachs also raised his price target on competitor Potash Corp. of Saskatchewan (NYSE: POT). If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on CF.

After hitting a one-year low of $44.16 in August, the stock hit a one-year high of $159.00 in April. CF opened this morning at $149.99. So far today the stock has hit a low of $149.99 and a high of $154.52. As of 12:45, CF is trading at $154.37, up $7.70 (5.3%). The chart for CF looks bullish and deteriorating slightly, while S&P gives the stock a neutral 3 Stars (out of 5) Hold rating.

For a bullish hedged play on this stock, I would consider a July bull-put credit spread below the $115 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. This particular trade will make a 5.3% return in just six weeks as long as CF is above $115 at July expiration. CF would have to fall by more than 24% before we would start to lose money.

CF hasn't been below $115 since early April and has shown support around $122 recently. This trade could be risky if the prices for oil fall and agricultural futures follow in the coming weeks, but even if that happens, that position could be protected by support the stock might find just above $120, where it bottomed out in May.

Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in CF.

MOST NOTEWORTHY: AmericanWest and Raymond James were today's noteworthy initiations:

• Keefe Bruyette initiated AmericanWest (NASDAQ: AWBC) with a Market Perform rating and $5 target, citing limited capital and credit visibility.
  
• Sandler started Raymond James (NYSE: RJF) with a Buy rating.

OTHER INITIATIONS:

• Goldman assumed Terra Industries (NYS: TRA) with a Sell rating and CF Industries (NYSE: CF) with a Neutral rating and $180 target.