How the strength of ETFs can guide investors to the best stocks – January 12, 2022


There has never been a better time for investors to take advantage of global market trends than now. Both bullish and bearish price trends exist in the global equity, currency and commodity markets. Exchange-traded funds (ETFs) are a great investment vehicle to take advantage of these price trends.

ETFs were first traded in 1993 and have exploded in popularity ever since. While they have many of the same benefits as mutual funds, one distinct difference is that ETFs generally don’t distribute capital gains to shareholders. The accounting and tax process for ETFs is therefore much simpler than for mutual funds that require investors to record distributions. In many cases, ETFs also offer cheaper expense ratios.

ETFs hold a pool of securities and are designed to track a particular index, sector, commodity or currency. There are thousands of ETFs that track the performance of various stock indices and sectors. Another distinct advantage of investing in ETFs is that by following specific ETFs, investors can more easily detect individual stocks that are outperforming the general market.

A good example in the current market environment is the VanEck Vectors Agribusiness ETF (MOO). This ETF is currently trading near an all-time high. MOO had been in a consolidation pattern since the second quarter of last year, as shown below. We had something of a fake breakout in early November, and MOO is knocking on the door again as it breaks that range. New highs are a sign of strength.

Image source: Zacks Investment Research

Our proprietary research here at Zacks indicates a low risk rating for the MOO ETF. We can see MOO’s sector breakdown below:

Zacks investment researchImage source: Zacks Investment Research

We will analyze two stocks which are both currently ranked #1 (Strong Buy) based on our proprietary Zacks Rank system. Both stocks saw positive earnings estimate revision activity. These two securities represent approximately 8% of the MOO’s total holdings.

The two stocks we’ll discuss below are part of the Zacks Fertilizers industry group, which ranks in the top 2% of 254 industries. We expect this industry group to outperform the market over the next three to six months. By focusing on stocks in the top industries ranked by Zacks, investors can significantly improve their likelihood of investing success.

CF Industries Holdings, Inc. (FC Free report)

CF Industries Holdings is a global manufacturer and sells hydrogen and nitrogen products for clean energy, fertilizer and related industrial applications. World leader in the transformation of natural gas into nitrogenous products, CF is one of the largest distributors of nitrogenous fertilizers and other related products. CF Industries Holdings was founded in 1946 and is based in Deerfield, Illinois.

CF’s main products include anhydrous ammonia, granular urea and ammonium nitrate products. The company primarily serves independent fertilizer distributors, traders, wholesalers and industrial users. CF is well positioned to benefit from rising nitrogen demand in North America, driven by healthy corn acreage in the United States. A recovery in nitrogen prices will also boost the company’s results.

CF revenue in 2021 is expected to have increased by 143.54% to $3.58 compared to 2020. Revenue is expected to have increased by 55.01% to $6.39 billion. Even more impressive is the fact that analysts have increased their 2022 EPS estimates for FC by 27.84% over the past 60 days. Revenue is expected to increase 246.42% to $12.40 from 2021.

Zacks investment researchImage source: Zacks Investment Research

CF is trading at an attractive valuation (5.58 forward P/E) and is posting an average of +97.82% broken earnings over the past four quarters. CF stock outperformed the market last year with a return of 52.73%.

CF Industries Holdings, Inc. Price, Consensus, and EPS Surprise

CF Industries Holdings, Inc. Price, Consensus, and EPS Surprise

What the Zacks Model Reveals

The Zacks Earnings ESP (Expected Surprise Prediction) seeks to identify companies that have recently experienced positive earnings estimate revision activity. This proprietary technique has proven to be very useful in finding positive profit surprises. In fact, combining a No. 3 or higher Zacks ranking with a positive earnings ESP, stocks produced a positive surprise 70% of the time according to our 10-year backtest.

CF boasts a +20.03% earnings ESP and a Zacks #1 Strong Buy ranking, indicating a beatdown could be in the cards when the company reports on Feb. 16.and.

Nutrien, Ltd. (NTR Free report)

Nutrien Ltd. produces and sells fertilizers and related industrial and food products. NTR offers potash, nitrogen, phosphate and sulfate products. Based in Saskatoon, Canada, Nutrien also distributes crop nutrients, protection products and seeds to approximately 2,000 retail locations internationally.

NTR benefits from higher global demand for crop nutrients. Strong grower economies and rising crop prices are driving demand for fertilizers around the world. Higher selling prices should boost the company’s sales and margins. NTR is also poised to take advantage of acquisitions, particularly the acquisition of Tec Agro last year, which strengthened the company’s presence in the growing Brazilian agricultural market. Nutrien expects its total annual sales in Brazil to be around $500 million.

Revenue in 2021 is expected to have increased by 233.89% to $6.01. Last year’s revenue is expected to have risen 27.07% to $26.5 billion from 2020. Analysts also raised their 2022 EPS estimates by 10.94% over the past 60 days. The Zacks consensus estimate now stands at $8.82, which would represent growth of 46.86% from 2021.

Zacks investment researchImage source: Zacks Investment Research

NTR is trading at a forward P/E of 7.94 and benefits from an attractive price chart. The company recently reported quarterly EPS of $1.38 in November, a surprise +12.2% from consensus. NTR delivered a four-quarter average earnings surprise of +73.49%, supporting the stock’s 36.08% return over the past year.

Nutrien Ltd. Price, Consensus and EPS Surprise

Nutrien Ltd.  Price, Consensus and EPS Surprise

Nutrien is scheduled for its next earnings announcement on February 16and. Both of these Zacks #1 Strong Buy stocks are expected to continue their strong runs through 2022.

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