As the broader market bull looks ready to be put out to pasture, one beaten-down group may be about to turn higher. 

Since we’re looking at the early stages of a potential multiyear uptrend for the sector, traders who get in now could see substantial gains. And one market leader that is trading at fire-sale prices and throws off a 5% dividend yield could be the perfect way to play this turnaround.

#-ad_banner-#​Cycles Always Come Full Circle
Agriculture is one of my favorite long-term themes, with global food demand set to outpace production capacity. This will drive the need for fertilizers — an extremely cyclical sector that has finally started to rebound.

Fertilizer producers have felt a lot of pain over the past several years. Booming capacity in China was one culprit, as it led to price pressure from imports. Another was lower crop prices, due in part to record high harvests, which weakened demand for fertilizer. However, it looks like these pressures are set to ease, leaving U.S. fertilizer producers primed for a rebound. 

Shares of CF Industries (NYSE: CF), the largest nitrogen fertilizer producer in North America, are more than 65% off their 2015 highs. But they are set to surge as the company ramps up its capacity to steal market share from imports.

North American producers have been able to survive the wave of Chinese imports thanks to a pricing advantage from the shale gas boom. Producers like CF Industries still enjoy a 50% cash margin at recent urea prices of $247 per ton and should continue to benefit on an estimated 35 years of natural gas resources in the continent.

Government subsidies of the local industry drove Chinese exports, so it’s possible we’ll see some political pressure in the United States, as has been the case with Chinese steel exports. While Urea exports out of China reached 14 million tons last year, they are expected to come in under 10 million tons this year and drop to 7 million in 2017. 

In a recent investor presentation, CF Industries also noted that there have been a significant number of urea plant closures in China this year. Twenty-seven facilities have reportedly been closed so far in 2016, with a total capacity of 7.6 million tons per year, and another 5.6 million tons of capacity is in temporary shutdown status. Over the past three years, closures totaled 24.2 million tons a year in Chinese capacity.

CF Industries, on the other hand, is scheduled to complete expansions at two facilities this year, which should help the company increase volume as prices improve and imports fall. Its Donaldsonville expansion will make it the world’s largest nitrogen facility and increase capacity by more than a million gross tons.

As supply-side pressures ease, demand could start to support higher prices for fertilizers, thanks in part to changes in weather patterns. 

The National Oceanic and Atmospheric Administration (NOAA) has officially called the end to the El Nino weather pattern and is putting the odds of La Nina developing this fall at about 70%. The La Nina pattern typically means hotter, drier weather in the U.S. corn belt and can lead to a boom in prices as we saw during the 2012 heat wave.

CF Industries is pricing in 2% demand growth from agriculture and 3.5% from industrial users. Combined with higher volume capacity from expansions and the potential for higher fertilizer prices, this could translate into significant revenue and profit growth for the company… which would take the market completely by surprise.

CF has missed analysts’ earnings estimates in each of the past four quarters, and quarterly and full-year expectations have been dropping like a rock. Earnings estimates for the current quarter have been slashed from $0.23 per share three months ago to just $0.02, which represents a 96% year-over-year decline. For the full year, analysts expect earnings to drop 73% to $1.06 per share.

Any good news in the industry could provide a significant boost to investor sentiment. In fact, it looks like even the bad news has been baked into the shares. 

Moody’s and S&P both downgraded the company’s credit rating, yet the stock is up more than 8% this week. Much of this is due to the weakening U.S. dollar, but investors may also finally be catching on to CF’s strong fundamentals.

The company generated more than a billion in cash from operations over the past 12 months and has $2 billion in cash on its balance sheet. Management committed to the company’s balance sheet health at an analyst meeting in September, saying they would resume share repurchases once the company’s leverage ratios were secure. 

Meanwhile, CF’s dividend has held steady even in the tough price environment, so I am confident in management’s ability to maintain the current quarterly payout of $0.30 per share. 

The 5% yield is certainly a nice incentive for traders to hold shares while they wait for a rebound, but a 19% yield would be even nicer. And we can achieve this through a conservative income strategy known as selling covered calls.

Generate 19% In Annual Income While You Wait For A Rebound
A covered call involves purchasing at least 100 shares of a stock and then selling a call option on that stock to collect income, known as a premium. 

Selling a covered call on a stock means a few things: 

1. By selling a covered call, you agree to sell 100 shares of the underlying stock at a specified price (the strike price) at a specified date (the expiration date) if the stock is trading above the strike price. 

2. The income you receive for selling the call is yours to keep no matter what. 

3. The income lowers your cost basis on the shares and helps protect you if the stock trades lower. 

So, with CF trading at $24.15 at the time of this writing, we can buy 100 shares and simultaneously sell one CF Jan 27 Call, which is trading around $0.85 ($85 per contract). This lowers our cost basis to $23.30 per share, giving us about 3.5% in downside protection.

If shares close below the $27 strike price at expiration on Jan. 20, we keep them and have the chance to sell another call. If we could generate $0.85 every three months, we’d bring in an additional $3.40 in income a year, on top of the $1.20 annual dividend. This would boost the stock’s yield to 19%, and we don’t even need shares to budge an inch.

Now, if the shares close above the $27 strike price at expiration, they will be sold for that price. In this case, we will make $2.85 in capital gains, plus the $0.85 premium and the November dividend of $0.30. That gives us a total profit of $4 per share, for a return of 17.2% over our cost basis of $23.30. Because we’d earn that in 93 days, the annual return works out to 67%.

Either outcome would be considered a win, which is why I’m such a big fan of covered calls. And they aren’t just for active traders either. They are simple and safe enough for retirees. In fact, one group of regular investors is using this strategy to pocket $3,000 a month in extra income.