Not All Companies Are Created Equal and these 3 Prove It

You can learn a lot from looking at an industry's best performers—here are three that bucked the trend in struggling industries last year.

Jan 7, 2014 at 11:33AM

Investing is about information and one of the best ways to learn about an industry is to look at its best performers. This simple tactic can tell you what's working in an industry and what isn't. Last year Alliance Resource Partners (NASDAQ:ARLP), Agrium (NYSE:AGU), and Freeport McMoRan (NYSE:FCX) all outperformed while competitors struggled.

Coal
Coal has been suffering for a number of years from both its dirty image and relatively low natural gas prices. And while big industry players like Peabody Energy (NYSE:BTU) suffered steep price declines in 2013, Alliance Resource Partners is set to post another year of record results and its shares were up over 30%.

The key difference at Alliance is that it mines for coal predominantly out of the Illinois coal Basin, or ILB. This is one of the two cheapest coal basins in the United States. However, the key factor here is that utilities have been switching from higher cost Central Appalachian coal to ILB coal. So, while coal has been competing against natural gas for share of the electricity pie, ILB coal has been taking a bigger bite of coal's slice.

The takeaway isn't that you should buy Alliance, though that's not a bad idea. It's that miners with notable ILB exposure are likely to have an edge on competitors. Alliance is a near-pure play ILB miner, but globally diversified Peabody is a big player in that region, too, making it worth a look for contrarian investors.

Fertilizer
Potash miners took a big hit in the middle of 2013 when a European sales consortium broke up. Shares of big player Potash Corp. (NYSE:POT) quickly fell, along with the shares of Mosaic (NYSE:MOS). Although competitor Agrium's shares were down about 8% on the year, they barely budged on the same news.

The difference here was diversification. Where Potash and Mosaic are both reliant on the fertilizer market -- including potash, phosphates, and nitrogen -- for their top and bottom lines, Agrium has taken a broader approach in its efforts to help customers get more from their farms. That includes selling seeds, pesticides, and owning a chain of stores selling to the farm market directly. As a result, fertilizers only make up about a quarter of the company's business.

Although a recovery in the fertilizer market will clearly be a bigger benefit to Potash and Mosaic, Agrium might be a safer way to play the industry's long-term trend. Population growth coupled with improving economic standards, particularly in developing markets, will increase the need for food. The best way to meet that need is to use fertilizer. However, the trend should have a broader benefit for the entire agriculture market—Agrium is a way to play both the fertilizer trend and the growth in the broader ag market, as well.

Copper, Gold, and Oil?
The shares of Freeport McMoRan Copper & Gold started to move higher in the middle of 2013 even while the shares of competitors like Southern Copper (NYSE:SCCO) continued to languish. That upturn coincided almost perfectly with the consummation of an oil and natural gas acquisition.

While drilling for oil and gas is very different from mining for copper and gold, the purchase got the company into an industry that's doing relatively well. The drilling segment now makes up about 25% of Freeport's overall business. A broadening footprint was the reason for the upturn and why you might want to keep an eye on Canada's Teck Resources (NYSE:TCK).

Teck recently announced it's moving forward on a plan to mine oil from the Canadian oil sands. Although production won't start for a couple of years, when the oil does start "flowing," it could turn into an important growth engine for the miner. And investors could push Teck shares higher like they did with Freeport.

Takeaways
With a new year just under way, it's a good time to look at what worked in 2013 and try to figure out why. That can give you a read on how to start 2014 out on the right foot. And the divergent performances of Alliance, Agrium, and Freeport hold a huge amount of information that can be used to help direct your investing as January gets under way.  

Start 2014 off right with investing wisdom from Warren "The Oracle" Buffett

Warren Buffett has made billions through his investing and he wants you to be able to invest like him. Through the years, Buffett has offered up investing tips to shareholders of Berkshire Hathaway. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.

 

Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Alliance Resource Partners, L.P.. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold and PotashCorp. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers