The bull case for CVR Partners LP (NYSE:UAN)
Perhaps not — at least not in the estimation of CAPS investors, who give CVR Partners LP (NYSE:UAN) a Fool complement of five CAPS stars. CAPS All-Star TMFDeej likes the 3.1% dividend yield at CVR and is biding his time in hopes the company will further increase its fertilizer production capacity.
CAPS member PublicWireless calls the company “very profitable” and says it has a “sound balance sheet …. Great dividend.”
All-Star investor DrGoldin notes that “if you … account for the large (and solid) dividend, this looks like a healthy investment.”
Yet is it the best investment for your money? If truth be told, I’m not sure it is. In fact, I’m not even sure it’s the best investment in the fertilizer industry. Consider: While 16 times earnings isn’t a lot to pay for a 12% long-term grower with a 3.1% dividend yield, the fact remains that CVR Partners LP (NYSE:UAN)isn’t generating a lot of cash from its business right now. True free cash flow at the company over the past year amounted to only $51 million — less than half CVR Partners LP (NYSE:UAN)’s reported $112 million in GAAP profits.
Seems to me a better way to invest in fertilizer would be to buy shares of a company such as CF Industries Holdings, Inc. (NYSE:CF) instead. Although CF isn’t growing as fast as CVR Partners LP (NYSE:UAN) (only 4% per year) and doesn’t pay as big of a dividend (only 0.8%), CF Industries Holdings, Inc. (NYSE:CF) nonetheless has several attributes that make it more attractive to me as an investment:
More cash on the balance sheet — $680 million net of debt.
A lower P/E ratio — at 7.1 times earnings, CF Industries Holdings, Inc. (NYSE:CF) costs barely half the valuation of CVR Partners LP (NYSE:UAN).
And best of all, superior quality of earnings. CF Industries Holdings, Inc. (NYSE:CF)’s $1.85 billion in trailing free cash flow is actually a small fraction of a percent more than the GAAP income it reports. And that’s a whole lot better than 50% less.
Long story short, while I wouldn’t necessarily short CVR Partners, I’d be much more likely to go long CF Industries Holdings, Inc. (NYSE:CF).
The article 4 Superball Stocks originally appeared on Fool.com.
Fool contributor Rich Smith does not own, nor is he short, any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he’s currently ranked No. 336 out of more than 180,000 members. The Motley Fool owns shares of CF Industries Holdings, Inc. (NYSE:CF) and Dendreon Corporation (NASDAQ:DNDN).
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