A preferred “best buy”

Investor’s Digest of Canada, MPL Communications Inc.
133 Richmond St.W., Toronto, ON, M5H 3M8. 1-800-804-8846

In picking stocks, David Cockfield tries to avoid a flash in the pan. “Typically, you might be quite keen on something,” says Mr. Cockfield, managing director and portfolio manager of Northland Wealth Management in Markham, Ont.  “But six months or a year later, you might have second thoughts.”

That’s why he likes long-term plays, one of which he considers to be Agrium Inc. (AGU-TSX. $90.16).

Agrium, notes Mr. Cockfield, is in the fertilizer and farm products business. And given the explosive rise in global population, not to mention the demand for better food in the developing world, both fertilizers and farm products have good growth potential, he says.

But Mr. Cockfield also likes Agrium’s big corporate foot print. Both a wholesaler and a retailer, it boasts a broad range of products. It’s also global, blanketing Western Canada, Europe and the Mideast. In addition, it’s well established in the U.S. where it’s already the biggest retailer of fertilizers, chemicals and seeds.

Footprint includes Australia

And thanks to its 2010 acquisition of Australian Wheat Board, Agrium now has roughly 350 wholesale and retail outlets in that country alone.

In the interim, the company remains in growth mode, having recently got the OK to buy Viterra’s retail stores in Western Canada from GlencoreXstrata . The deal will make Agrium the dominant farm retailer in the Canadian West.

For Mr. Cockfield, Agrium is not only a best buy, but one that’s undervalued. Although it now trades at roughly 9.8 times its trailing 12-month earnings, it could, given its growth prospects, likely trade at least 216 basis points higher, Mr. Cockfield believes.

In the meantime, Mr. Cockfield sees Agrium’s 2014 net earnings ranging between $9.50 and $10 a share. He also sees its 12-month price target hitting the low $100s.

One known as Cominco Fertilizers, Agrium adopted its current name in 1995. Although based in Calgary, Agrium has sited its retail head office in Denver, Colo.

For the three months ended June 30, Agrium’s net income slid to US$747 million, or $5.02 a share, from $860 million, or $5.44 a share, for the similar period in 2012. EBIT (earnings before interest and taxes) was also down, falling to $1.1 billion from $1.2 billion.

Revenue, though, was higher, inching up 2.9 per cent to US$7 billion, although gross profit fell 10.5 per cent to $1.7 billion.

For the six months ended June 30, Agrium’s net earnings fell to US$888 million, or $5.96 a share, from $1 billion, or $6.41 a share, for the similar period in 2012. EBIT, not surprisingly, was also lower, sliding to US$1.3 billion from $1.5 billion. Revenue, too, was down, although it slipped less than one per cent to US$10.2 billion.

Mr. Cockfield may like a longterm agribusiness play like Agrium. But he also has a soft spot for what he considers to be a long-term bet in global engineering and consulting: SNC-Lavalin Group Ltd. (SNC-TSX, $43.57).

Company has few rivals

For starters, he says, global engineering and consulting, not only boasts good growth prospects for the long term, but few rivals.

And although Mr. Cockfield admits SNC’s reputation over the past few years has been blackened by allegations of bribery, its core competencies, he points out, remain unsullied.

“The real core of the company is still intact, which is its pool of experienced engineers who can bid on world-class projects.”

Not only, he says, has he never heard anyone complain about the quality of SNC’s work, but given its wide-ranging expertise — in engineering, construction and project management, among other fields — the company has a bright future.

It also boasts a portfolio of valuable infrastructure holdings which, if sold, could bring in pots of money. Indeed, one such holding, AltaLink, could be worth $4 billion-plus, Mr. Cockfield believes. Yet another SNC infrastructure holding is Highway 407, the electronic toll road that skirts Toronto and its fast-growing suburbs.

Meanwhile, SNC stock remains solid, despite the company having taken some big write downs. In fact, Mr. Cockfield sees the stock bouncing back to where it was in 2011, in the range of $60 a share.

For Mr. Cockfield, SNC-Lavalin is also a best buy, one with a 12-month price target of $50-plus. He’s also predicting 2014 net earnings of $2.50 a share.

For the second quarter of 2013, SNC-Lavalin swung to a net loss of $37.5 million, or $0.25 a share, from net income of $31.9 million, or $0.21 a share, for the similar period in 2012.


Investor’s Digest of Canada, MPL Communications Inc.
133 Richmond St.W., Toronto, ON, M5H 3M8. 1-800-804-8846

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