New Trade for February 2nd, 2023

2022 produced a performance chasm between value and growth equities, with value recapturing the lead following a strong run for growth in recent years. As interest rates rose rapidly in 2022, with the fed funds rate now around 4.3%, we saw downward pressure on higher-valuation assets, including growth stocks. Many investors gravitated towards more defensive value sectors. A U.S. large-cap value index fell nearly 8% on a total return basis while its growth-style counterpart dropped 29%.

Value will likely continue to outperform growth in the near term as the Fed continues down its rate-hiking path. Today’s featured stock is a discerning selection from the materials sector that boasts an outstanding track record and seems significantly undervalued compared to peers.   

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CF Industries Holdings, Inc. (CF)

CF Industries is a major distributor of North American nitrogen fertilizer products. Disruption in fertilizer supplies caused by the war in Ukraine has sent fertilizer prices soaring to record highs.   CF is generating plenty of cash flow to achieve a net cash position, buy back an estimated $1.5 billion in stock in 2023, explore targeted acquisitions, and invest in clean nitrogen projects. CF is a good value at 5.2 times earnings compared to the US Chemicals industry average of 14.5 times earnings. With its low 9.1% payout ratio, CF’s 1.9% dividend is reliable and thoroughly covered by earnings.  

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