CF Industries: Leading the Charge in Basic Materials Amid Global Shifts

CF Industries (NYSE: CF) is proving that in the world of basic materials, not all companies are created equal. While the iShares U.S. Basic Materials ETF (IYM) has struggled to post a mere 4.8% return year-to-date (YTD), CF has surged 17.6%—a gap that highlights its structural advantages and sector leadership. This isn't just a numbers game; it's a story of strategic foresight, operational excellence, and a clear path to capitalize on global demand shifts. Here's why CF isn't just surviving—it's thriving.

### The Numbers Don't Lie: CF's Financial Dominance
Let's start with the basics. CF's Q1 2025 results were nothing short of stellar: revenue jumped 13.1% year-over-year to $1.7 billion, while net income per share soared 79.6% to $1.85. Gross profit margins expanded by a staggering 660 basis points, and adjusted EBITDA rose 40.3% to $644 million. These figures aren't flukes—they're the result of a company leveraging its low-cost natural gas advantage and positioning itself at the crossroads of agriculture and clean energy.



Compare this to its peer The Mosaic Company (NYSE: MOS), which, while up 47.8% YTD, lacks CF's diversified revenue streams and long-term strategic bets. MOS remains heavily tied to potash, a commodity prone to price volatility, while CF's nitrogen business—a critical input for global agriculture—benefits from steady demand.

### Strategic Advantages: Natural Gas, Clean Energy, and Nitrogen Demand
CF's low-cost natural gas feedstock gives it a massive edge. Unlike peers in regions with higher energy costs, CF's U.S. Gulf Coast facilities produce nitrogen fertilizers at a fraction of the cost of competitors in Europe or Asia. This isn't just a cost advantage—it's a profit engine.

But CF isn't resting on its laurels. The company is pivoting aggressively toward clean energy, a move that's critical as governments and industries decarbonize. Its $4 billion Blue Point joint venture with JERA and Mitsui—a project to produce 1.4 million metric tons of low-carbon ammonia annually—positions CF to dominate the emerging green energy market. Ammonia, a key component in fertilizer and a promising hydrogen carrier, is set to become a cornerstone of the global energy transition.

Meanwhile, nitrogen demand remains robust. Global agriculture is resilient, fueled by population growth and rising protein consumption, particularly in Asia. CF's share buybacks—$1 billion in 2024—also signal confidence, returning capital to shareholders while reducing dilution.

### Why Peers Are Struggling—and CF Isn't
While CF soars, peers like MOS and the broader materials sector (IYM) lag. MOS's potash-heavy portfolio leaves it vulnerable to commodity price swings, and its geographic exposure to high-cost regions limits margins. The IYM ETF, which holds CF at just 2.63% of its portfolio, is hamstrung by high volatility (beta of 1.14) and an overconcentration in top stocks.

CF's diversified strategy—balancing traditional agriculture with clean energy—gives it a moat peers lack. Its ammonia project isn't just a growth play; it's an insurance policy against commodity cycles.

### Analysts Are Catching On—But Should You Wait?
CF's recent analyst upgrades are a positive sign. Piper Sandler raised its price target to $115 (a 29% upside from current levels), while Scotiabank upgraded to “Sector Perform” in April. Even with a “Hold” consensus from Zacks (due to valuation concerns), the stock trades above its $85.87 price target.

Yet, skeptics argue CF's valuation is stretched. At 15.2x forward earnings, it's pricier than MOS's 11.8x. But here's the rub: CF's margins are expanding, and its clean energy bets could unlock entirely new revenue streams. This isn't a value trap—it's a growth story in a value sector.

### Final Call: CF Is a Buy—But Mind the Risks
CF Industries is my top pick in basic materials. Its combination of strong fundamentals, strategic foresight, and a clear path to energy transition leadership makes it a rare “buy-and-hold” candidate in a volatile sector.

Buying CF on the announcement date of its quarterly earnings and holding for 20 days has historically been a profitable strategy. From 2020 to 2025, this approach generated a total return of 168.65%, averaging 20.32% annually. While the strategy faced a maximum drawdown of 38.57%, its performance underscores CF's strong post-earnings momentum, aligning with its status as a buy-and-hold candidate.




However, investors should tread carefully. Natural gas prices and geopolitical risks (e.g., trade policies, energy subsidies) could disrupt margins. The stock's current premium valuation also demands patience—dips below $80 could present better entry points.

In short, CF isn't just outperforming—it's outclassing. For investors willing to bet on agriculture's resilience and the energy transition, this is a stock to own for years, not months.

Action Item: Consider accumulating CF on dips below $80, with a long-term horizon. Pair it with a small allocation to the IYM for diversification, but remember: in materials, leadership matters most.