AGRIUM SHARES FACING A CROSSROAD AFTER THE NICE RUN OFF OF OCTOBER LOWS

Agrium, Inc.

shares have recovered sharply after breaking multiple levels of technical support during the October market sell-off. Apparently, whatever was forcing AGU longs out of the stock for a majority of this year – and especially during October – was completely reversed / negated by the global central bankers' words and actions at the peak of the October angst. The stock recaptured several layers of broken technical support and is now threatening to break out to the upside above key technical “correction resistance”. Do the fundamentals of the company support such a breakout? Or, was this upside simply a massive short-covering rally? What the bulls see in AGU… • Some cheap valuation metrics: o A PE of just under 14 – which seems cheap when compared with estimated 2015 growth in EPS of 38% o A price-to-sales of 0.89 o A price-to-book of 2.08 • A decent short-term financial position as evidenced by the current ratio of 1.28 • Annual operating free cash flow of $1.49 billion What the bears see in AGU… • Very modest revenue growth of only around 5% expected for 2015 • Thin net profit margins of 4.71% • Somewhat high overall debt as evidenced by the 71% debt-to-equity ratio The technical take on AGU… Technicians note that Agrium shares are right on the verge of either a breakout above key “correction resistance” or a failure and downside reversal right at that same resistance level. The level to which they are referring is the $102.54 level. That is the 100% Fibonacci price projection for the “c” wave of a possible “abc” upside correction on the monthly chart. Above that level of resistance, the next two milestones for the bulls will be $107.54 and $113.88 – if you're referring to monthly closes. On the other hand, should AGU shares fail to conquer the $102.54 level on a monthly closing basis and then reverse lower, the downside target could be all the way down at $74.47. Overall… We will obviously be watching how AGU acts heading into month's end in the next couple of weeks. We would even be willing to short the stock at current levels with a stop in place on a monthly close above $102.54. Such a close above the key resistance will not only have us covering the short position, but seeking to enter the stock on the long side with $102.54 as a backstop.