EOT Trade Alert – April 18, 2012

| April 18, 2012

April 18, 2012

Trade Alert:

  Buy CF May 2012 $195 Calls at $5.25 or better

Company Background:

CF Industries (CF) is the leading producer and distributor of nitrogen and phosphate fertilizer products, serving agricultural and industrial customers worldwide.  The company operates seven nitrogen facilities in North America and holds joint venture interests in the United Kingdom, Trinidad, and Tobago.

Short-Term Catalyst:

CF stock is poised to surge from high corn prices, and an increase in planted acreage in the United States.

First off, natural gas is at a record low and will be very beneficial in increasing margins for CF’s production.

That’s important because natural gas is the main feedstock in their nitrogen fertilizer production.  Moreover, 45% of CF’s cost of sales in its nitrogen business comes from natural gas.

Since the acquisition of Terra, CF Industries is the largest nitrogen fertilizer producer in North America… making CF’s scale in nitrogen fertilizers impressive.  As a result, the company operates seven nitrogen production plants in North America.  These include the continent’s largest facility in Louisiana, as well as Canada’s largest plant in Alberta.

What’s more, CF’s plants are connected to its main customers in the US Corn Belt by an extensive distribution network of rail, barge, and pipelines.  This network gives the company an advantage over foreign competition.

Now, CF’s nitrogen sales are greatly benefiting from high near-term US corn prices and planted acreage.  As we know, nitrogen fertilizers are key in achieving higher yields in corn.

And in 2012, corn acreage planted in the United States is expected to eclipse 2011.  In fact, corn planted acres reached the second-highest level since World War II.

Furthermore, access to pipelines connecting the company’s nitrogen facilities in Louisiana and Oklahoma to the Midwest gives CF a transportation cost advantage.

Bottom line…

With corn prices rising and natural gas prices declining, let’s buy calls to profit from CF’s rising stock price.

Trade Details:

Underlying Stock Symbol: CF
Current Bid-Ask Price: $4.95 – $5.10
Option “Buy Up To” Price: $5.25
Break-Even On Stock At Expiration: $200.25
Maximum Risk Per Contract: $525


Exit Strategy:

CF is trading at $186.20 per share.  Resistance and support levels will be tight because of the short time frame.  Resistance will be at $210 and again at $215.  Don’t forget, we want this stock to move higher.  Support levels will be at $180 and $172. Conservative investors should look to exit at the first support or resistance level. Aggressive investors may want to hold for a bigger move.




Category: EOT Trade Alert

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