These Stocks Beat Railroad Stocks

The soaring cost of fuel has combined with several other factors to drive railroad stocks to the top of many investors' lists -- including Warren Buffett's. But I've found investments from another sector that are beating the pants off railroad stocks -- and I know where you can find out more about them.

Would the real hot stocks please come forward?
Our Motley Fool CAPS community, more than 115,000 members strong, has rated 5,500 stocks. These stocks include descriptive "tags" that group them with other companies sharing similar qualities -- a country of origin, a sector, or an end product, for example. Clicking the Railroads tag pulls up a list of 21 stocks that have gained 6.2% on average in the past year.

But CAPS tags can lead you to stocks that have outpaced even the near-term returns from the railroads group. Check out Agricultural Chemicals. This group comprises 24 companies that have outperformed the returns of the railroads group, with a fantastic 18.7% average gain in the past year.

Each group has its share of winners and losers, of course, but CAPS can be a great resource for zeroing in on potential opportunities.

From macro to micro
You can sort tag groups by their CAPS ratings, from one to a maximum five stars, and then see which players -- from Wall Street to Main Street -- are bullish or bearish on a company, and why.

For instance, here are a few of the stocks in the Railroads group:

Source: Motley Fool CAPS and Yahoo! Finance, as of Sept. 9, 2008.

Now, based on the interest in the CAPS community, here's a sampling of Agricultural Chemicals stocks that investors may want to consider.

Source: Motley Fool CAPS and Yahoo! Finance, as of Sept. 9, 2008.

Sociedad Quimica y Minera
Chilean chemical manufacturer SQM develops products that handle every stage of the crop cycle. But the company is well-diversified in industrial chemicals, too, with sizable production capabilities for lithium and iodine. And despite a 40% drop in shares in the past three months, SQM stock is still a big winner over the past year, since the company has been able to raise prices to offset higher energy costs.

To help overcome cost increases, the company stays focused on high-margin markets -- a strategy that helped it increase earnings by more than 100% for the first half of 2008. And over the next three years, SQM plans on pouring roughly $1 billion into capital projects, particularly to increase production capacity for its potassium-based products that yield higher margins.

With SQM estimated to produce about half of the world's supply of potassium nitrate fertilizer, the company sits in a strong position, one which some CAPS investors believe give the company potential to be one of tomorrow's monster stocks. A solid group of investors -- more than 97% of the 969 CAPS members rating SQM -- see it outperforming the market going forward.

Mosaic
Along with other agricultural chemical companies, shares in Mosaic have come down from recent highs. Among other reasons, some investors have been feeling skittish about the recent slide in corn prices, as the U.S. corn belt has so far dodged potentially devastating floods that may put a serious crimp on corn supply. But some commodity watchers don't believe a tight supply scenario for corn needs to materialize to keep prices for fertilizer rising.  And many see no end in demand for a variety of grain crops, which in turn presses farmers to maximize production with advanced fertilizers.

Mosaic also sees a move by China to tighten fertilizer exports as a potential driver to sharply reduce output from the country. In CAPS, members are divided over the bullish and bearish factors weighing on the fertilizer sector. And some investors are still cautious on Mosiac's valuation, with its earnings multiple of 17.3, even though many bulls envision exceptional earnings growth well beyond this number. At this point, 1,818 of the 1,929 CAPS members rating Mosaic see the company beating the market, while the rest see a laggard stock.

Before you buy ...
Of course, what's happened in the past is no indicator of where investors should be putting their capital now. But the underlying reasons behind dramatic run-ups in stocks or groups of stocks can clarify trends that may significantly affect investments. Just make sure to do your own due diligence rather than simply following crowds or individual recommendations.