Earnings season is here, and we are about to get a deluge of data detailing how companies performed during the second quarter. I�m anticipating a wave of strong numbers across the board, with particularly strong results from companies in the agriculture and energy sectors.
Why these two areas? Well, because food and oil prices continued to be extremely high during the past three months, and that has spurred food and oil producers to try and squeeze out more supply. In the agricultural space, that means making the most out of every parcel of land. In the oil patch, it means locating, drilling and extracting as much crude as possible, often from hard-to-reach sources.
Helping companies make the most out of their growing lands are two outstanding fertilizer producers.
The first is CVR Partners, LP (NYSE: UAN). This limited partnership is focused primarily on manufacturing nitrogen fertilizers. The CVR Partners nitrogen fertilizer manufacturing facility is the only operation in North America that uses a petroleum coke gasification process to produce nitrogen fertilizer, which is the lowest-cost way to produce nitrogen fertilizers. In fact, UAN is the lowest-cost producer of nitrogen fertilizer in the U.S.
I suspect demand for this kind of nitrogen fertilizer was very strong in the second quarter, and that means we could be in for a big blowout quarter when the company reports earnings July 28.
Another strong nitrogen fertilizer play that�s likely to benefit from the boom in what I believe is an �agricultural super-cycle� is Terra Nitrogen (NYSE: TNH). I attribute this boom to the rise of the lower-middle classes in many of the emerging market nations, where appetites for better, more protein-rich foods are increasing. Terra Nitrogen does a lot of business in these emerging markets, and that�s why I�m also anticipating a strong quarter from this fertilizer producer when they report earnings Aug. 5.
When it comes to extracting that hard-to-find crude oil, SeaDrill (NYSE: SDRL) is the state-of-the-art pure play in the space. The company�s drilling technology and equipment command premium day rates, and with big demand for crude keeping SeaDrill�s utilization rates running near 100%, I expect big huge numbers when the company reports earnings Aug. 31.
As big oil deposits become more difficult to find without going deep, SeaDrill will be in the driver�s seat to extract big revenues and even bigger earnings. And with operations in 15 countries on four continents, those revenues are truly a global affair.
Disclosure: Bryan Perry recommends UAN, TNH and SDRL in his Cash Machine advisory service.
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