The Basics of Terra Nitrogen

Worldwide Invest Better Day 9/25/2012

This month, the Fool is promoting Worldwide Invest Better Day on September 25. The idea behind WWIB Day is to "educate, inspire, and motivate" investors of all experience levels to, well, invest better. With that in mind, let's take a look at the basics of Terra Nitrogen (NYSE: TNH  ) , a popular pick in the agriculture sector.

The company's basics
Terra Nitrogen is a small regional fertilizer company specializing in, you guessed it, nitrogen. In many ways it is similar to competitor CVR Partners (NYSE: UAN  ) -- both focus on nitrogen fertilizer production and operate a single plant each, just 60 miles from each other, and both are master limited partnerships that are majority-owned by larger fertilizer firms. In Terra Nitrogen's case, that's CF Industries (NYSE: CF  ) , the second-largest nitrogen producer in the world.

One key difference is that Terra has a much higher operating margin, but CVR is catching up fast. Between that and its faster revenue growth, CVR has grown profits at double the rate of Terra Nitrogen. Does that mean you should dump Terra and jump ship for CVR instead? Hardly. Both are excellent companies with strong fundamentals and low debt levels. Both also offer a healthy dividend. Terra Nitrogen's distribution history can be found here, and by the looks of it, it's strong and consistently growing.

The broader industry
As much as fertilizer sounds about as boring as watching grass grow -- since that's basically what it's for -- the industry is exciting for investors. The United Nations estimates that the world will need to double food production by 2050 to meet the rising demands of a growing population. While increased use of fertilizers is not a cure-all, it will go a long way toward meeting that goal.

Nitrogen fertilizer in particular is interesting because it isn't mined like other types of fertilizer. It is extracted from the air, and its main input cost comes from natural gas, which seems to always be getting cheaper. Thus, Terra and CVR are both growing margins compared to other fertilizer firms like PotashCorp (NYSE: POT  ) and Mosaic (NYSE: MOS  ) , which focus more on mined fertilizers.

That just about covers the basics of Terra Nitrogen, but stay tuned to the Fool as we give you the run-down on other stocks leading up to the first annual Worldwide Invest Better Day on September 25!

Fool contributor Jacob Roche owns shares of Terra Nitrogen. Check out his Motley Fool CAPS profile or follow his articles using Twitter or RSS. The Motley Fool owns shares of CF Industries Holdings. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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  • Report this Comment On September 17, 2012, at 2:42 PM, Domeyrock wrote:

    This is too funny! Someone was being a negative Nancy on CVR 2 weeks ago. Some of you writers are as crazy as the guys over at Seeking Alpha. But I happen to agree with you on this one.

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