There are some companies which I have supreme confidence in right now. I just deeply believe that these companies will be incredibly successful over the next few years. Agrium is one of these firms. Below is my argument for purchasing Agrium today, if you do not already own it.


Now I’m not sure how many people will need to buy cars in the coming years, or houses, or nice clothes for that matter. But I do know that people need to purchase food and nations such as China and India will require a lot more food in the next decade. The agriculture stocks had a great run throughout 2007 and half of 2008 based on this theory, as skyrocketing prices for corn, wheat and other crops led to a sharp increase in prices for potash and other fertilizers. Agrium reached a peak of over $110, but fell back to $22 during November. Since then, the shares have nearly doubled, but a recent pullback from $50 to its current price of around $41 provides investors with a great buying opportunity.

Agrium is currently in the midst of an ugly takeover battle with CF Industries. This uncertainty is probably holding the stock back a little, but I’m not overly worried about it. If Agrium ends up acquiring CF, it will be adding a strategic asset at a reasonable price. If not, Agrium will probably see a slight pop in its share price. Looking at past earnings, the company is trading at a crazy P/E ratio of 6. Obviously, the current year’s earnings will be significantly less than last year’s as farmers from around the world decided to cut back on fertilizers due to the high prices of the chemicals and poor economic situation. However, this trend is not one that will continue. Corn and wheat prices are already moving higher and next year’s growing season should see a return to significantly higher fertilizer demand. The world wont stop eating anytime soon and Agrium will capitalize on this insatiable demand for food.

So why do I own Agrium and recommend it ahead of companies like Potash or Monsanto? I love the diversity Agrium provides in this sector and have confidence in the firm’s management. You wont go wrong with any of the agriculture stocks listed above, but Agrium has great upside and probably the lowest downside of the three. I’m not sure when the stock will get back into triple digits (maybe 2-3 years), but I can definitely see it ending the 2009 calender year at north of $60.

The Stock Guy’s Official Ranking: 10 out of 10