Mr. Bowman is a portfolio manager at Hamilton-based Wickham Investment Counsel Inc., an adviser to high-net-worth clients. mike@mikebowmangroup.com
What are we looking for?
This past Sunday, Bill Doyle stepped down as president and CEO of Potash Corp. Mr. Doyle joined the firm in 1987 when it was a Crown corporation owned by the Saskatchewan government, and became CEO in 1999. Since Mr. Doyle was – for many on the Street – the face of the global fertilizer industry, my colleague Rob Belanger and I decided to look at the sector.
The screen
We started with global fertilizer companies larger than $1-billion (U.S.) in market capitalization, and ranked them from the largest to the smallest.
The estimated price-earnings ratio (P/E) of the current year uses consensus forecast earnings. We are looking for a low number.
Return on invested capital (ROIC) shows a company's efficiency at allocating its capital to profitable investments. It tells us how well a company is using its money to generate returns. We are looking for a high number.
Return on assets (ROA) shows how profitable a company is relative to its total assets. It indicates how efficient management is at using its assets to generate earnings, and a high number is preferred.
Return on equity (ROE) measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. A high number is ideal.
What did we find?
The lowest P/E belongs to Russia-based Acron JSC. The company owns potash and phosphate properties, and exports to 65 different countries. Acron JSC also owns exploration permits in Saskatchewan.
Saudi Arabia Fertilizer Co. scored the best in the ROIC and ROA categories. The company is a joint venture, originally between the government (51 per cent) and public investors of Saudi Arabia. The government later granted 10 per cent of its holdings to the company's work force. While the company also scored well in the ROE category, Fauji Fertilizer Co. took top spot for this metric on our screen. Based in Pakistan, it produces urea, phosphate, potash and boron.
CF Industries scores slightly better over all than the other North American-listed fertilizer companies, which includes Sociedad Quimica y Minera Chile SA, which trades on the NYSE. Based in Illinois, CF Industries has properties in Courtright, Ont., and Medicine Hat, Alta.
Investors should contact an investment professional or conduct further research before investing.