Wall Street can't generate enthusiasm for the companies we're going to talk about today. So why do our Motley Fool CAPS members disagree? They've bestowed on these companies the highest four- and five-star ratings, signaling their faith that the associated businesses will outperform the market while Wall Street offers lackluster support at best.
So who has it right? The professional class of analysts sitting in their paneled offices smoking stogies, or a motley crew of community investors pooling their best thoughts for others to share? We think we know who'll come out ahead. How about you?
CAPS Rating(out of 5)
No. of Analysts
Wall Street Bullish Sentiment
CAPS Bullish Sentiment
Intrepid Potash (NYS: IPI)
Rockwell Automation (NYS: ROK)
Source: Motley Fool CAPS.
Now, as much as we love our CAPS community, don't buy these companies just because they've garnered top ratings. And don't sell 'em just because Wall Street says to either. Investing requires closer diligence on your part, so use these ratings as a launching pad for your own research.
A growing stock
Intrepid investors staring down the 43% loss in value from its 52-week high are probably expecting worldwide demand for food to eventually send shares of Intrepid Potash higher again. People have to eat, the saying goes, so farmers will need fertilizer for their crops.
That's true, up to a point, but if it held so over all periods, you'd never find Intrepid's shares ever declining. The reason is, despite persistent demand -- people always need to eat and farmers always have to till their crops --macro events influence supply and demand.
As commodities prices soared, fertilizer companies boosted production to capture more profits. That's led to a surfeit of nitrogen and potash on the market, causing prices to fall -- and the market values of fertilizer producers to decline. But like crops, all things have their season, and the current environment is likely to lead producers to cut back on production once again. It's one of the reasons analysts have upgraded giant PotashCorp (NYS: POT) , even as they lowered their price targets.
Intrepid Potash remains among the more expensive fertilizer producers, trading at almost 17 times earnings and 13 times next year's estimates. Potash, the nearest rival, goes for less than 13 and 10 times earnings, respectively.
Yet that undercurrent of demand is probably what causes CAPS members to choose Intrepid as a long-term investment, such as All-Star saunafool, who foresees Intrepid's ability to operate as a low-cost producer a point in its favor.
Profitability in this sector are driven by potash prices and cost of production. Potash prices are going to depend on ag demand, which is pretty much determined to grow to meet biofuels production targets, plus huge growth in the developing world. Production costs in the mine are relatively fixed and natural gas prices in North America look to remain low. I'll take this one while it is beaten down.
Add the fertilizer producer to your watchlist, and then head over to the Intrepid Potash CAPS page and plow through what other investors are saying.
A scary continent
Considering the shaky financial condition of European economies today, industrial-processes specialist Rockwell Automation appears to be better situated than its rivals. ABB, for example, derives almost 40% of its revenues from Europe, while Siemens, which admittedly has its thumb in a lot of different pies, generates almost 60% of sales from the continent. Rockwell, on the other hand, produces 55% of its sales from North America, with 21% divided up between Europe, the Middle East, and Africa. Its exposure therefore is far lower as is the risk.
It carries a valuation premium as a result, making it more attractive than Honeywell (NYS: HON) . Honeywell is more richly valued but actually has a quarter of its sales in Europe -- yet without the same level of risk fronting its discounted foreign counterparts.
As an automation professional the vast majority of control system programmers consider Rockwells Logix platform the best PLC to program by far. Their Human Machine Interfaces (i.e. touchscreens, computer visualization software) is a good as any other I've used (different but not better). They have excellent support services for their products and a relatively easy to use website (compared to some of their [competition] in the automation field).
Add Rockwell Automation to your watchlist, and see whether it will automatically generate greater profits at lower risk.
What's wrong with that?
Still think international stocks are the way to invest? Then check out three companies The Motley Fool says are positioned to dominate emerging markets in the years to come. The special free report is only available for a limited time, so get your copy today before they've already conquered the world.
At the time thisarticle was published Fool contributorRich Dupreyholds no position in any company mentioned. Check out hisholdings and a short bio.Motley Fool newsletter serviceshave recommended buying shares of ABB. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.