At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." Today, we'll show you whether those bigwigs actually know what they're talking about. To help, we've enlisted Motley Fool CAPS to track the long-term performance of Wall Street's best and worst.

And speaking of the best ...
Am I not just talking to myself? Does somebody actually read this column? I wonder... because just a few weeks back, I took the analysts at RBC Capital Markets to task for making an ill-considered endorsement of PotashCorp (NYSE: POT). I suggested that if fertilizer stocks were what appealed to RBC, CF Industries (NYSE: CF) offered a much better bargain. And yesterday, what to my wondering eyes did appear?

A report out of that showed Citigroup downgrading PotashCorp -- and Mosaic (NYSE: MOS) as well -- and in their place naming CF Industries its Top Pick in the fertilizer-osphere.

Digging up bargains... and duds
Citi reasoned thusly: Fertilizer sales are slowing down, and margins look likely to drop too as increased imports of "phosphate rock" come to market. That's bad news for PotashCorp, which derives more than 70% of its revenue from potash (naturally) and phosphate-based fertilizers. It's particularly bad news for Mosaic, which focuses on phosphates and potash. Accordingly, Mosaic got especially rough treatment from Citi, which downgraded the stock all the way to "neutral."

In this pricing environment, Citi thinks nitrogen fertilizer is the way to go. And if that's the case, CF Industries -- which gets 80% of its revenues from nitrogen fertilizers -- should be the company best positioned to weather the storm. That's with the possible exception of Terra Nitrogen (NYSE: TNH), which I argued last month was the second-best bargain in the fertilizer industry, after CF Industries itself.

But just in case you don't buy Citi's preference for nitrogen over phosphates and potash... there's another great reason to prefer CF Industries (and Terra Nitrogen) over PotashCorp and Mosaic: price.

Valuation matters
Once again, here's how the numbers look for these companies, updated through today:



Est. Growth Rate

Free Cash Flow as a % of Net Income

PotashCorp 13.1 11% 42%
Mosaic 8.9 8% 41%
CF Industries 8.9 17% 175%
Terra Nitrogen 12.6 N/A 98%

P/E and growth rate data courtesy of Yahoo! Finance; free cash flow from S&P Capital IQ. N/A = not available.

Once again, we find CF Industries far and away the best value of the bunch. Not only does CF sport a P/E nearly as low as that of the now-downgraded Mosaic. Not only is it expected to grow faster than any other company in the industry, and twice as fast as Mosaic. CF Industries is also the only company in the industry that's currently generating free cash flow superior to what it reports as net income under GAAP accounting standards. It's the only company -- not to put too fine a point on it -- that's actually cheaper than it looks.

For this reason, I agree with Citi's upgrade, and with its downgrades as well. CF deserves to be a "top pick" for your portfolio. PotashCorp and Mosaic do not.

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