Chemical and Mining Company of Chile

01/07/2014 6:00 am EST

Focus: INDUSTRIALS

Carlton Delfeld

Editor, The La Jolla Letter and Pacific Gains

 

My aggressive stock pick for 2014 is a Chile-based company that produces $2.5 billion worth of specialty chemicals and commodity fertilizers each year, notes Carl Delfeld, editor of Capital Gains.

Chemical and Mining Company of Chile (SQM) has long been a darling of global investors looking for plays for more productive farmland. However, the stock has plunged 59% in 2013, due to weak fertilizer and phosphate prices.

But given the strong trends underpinning this story, I think SQM is beginning to bounce back, with the catalyst being a return to normalized pricing and earnings.

After all, the company has a strong balance sheet, $900 million-plus in cash reserves, and a dividend yield of 3.8%. Farmers need its products to continue to boost productivity, with some believing that fertilizers account for more than 40% of increased agricultural yields over the last decade.

In addition, SQM is known for its hefty operating margins, and still delivers a 10.8% return on assets and a 25% return on equity. As a bonus, SQM produces 35% of the world's lithium.

Finally, the stock is trading at just ten times earnings and delivers a hefty 5.2% dividend yield, with a dividend growth rate of 28% over the past five years.

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