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CVR Partners (NYSE:UAN ) has a very strong potential to deliver meaningful upside over the next twelve months. Indeed, the stock appears to be trading at approximately 3x net income.

Yet, since I wrote bullishly about CVR Partners last month, the stock has sold off by 14%.

On the surface, this price action is disappointing. However, as you'll read, all the signs are now even stronger, with the demand for nitrogen fertilizer being notably strong.

Consequently, I contend that the bull case is very much intact. This is a highly cash-flow generating business, that's returning substantial cash back to shareholders, and is still impressively cheap. I rate this stock a buy.

In the past month, fertilizer stocks have sold off. Personally, given that I'm someone with significant exposure to this general space, I find this price weakness perplexing.

I know that making references to Mr. Market, sounds so banal. But let's get down to the facts of the matter. There is a global food crisis coming our way. From bad weather patterns in the US to droughts in Brazil, as well as weather shocks in countless African countries.

David Beasley, head of the UN World Food Programme, had an interview with FT.com yesterday, where he describes the environment as a ''perfect storm in a perfect storm, a catastrophe within a catastrophe''. Beasley declares that it's probable that there's going to be a food availability problem in 2023 and goes on to say,

When you got Russia and Ukraine, that grows enough commodities to providing 30 per cent of the world’s supply of wheat, 20 per cent of the world’s supply of maize, 76 some odd per cent of sunflower oil. Let me keep going on. Then you got the fertiliser problem that’s being now compounded by Belarus and Russia. What do you think happens when you don’t have fertiliser? What cuts your yield down in half?

Why is this relevant? Those comments demonstrate that the problems are not getting solved. The demand for fertilizer is moving up, up.

Accordingly, you can see that the price for urea ammonium nitrate (“UAN”) is moving higher. There is no ambiguity. Meanwhile, the fertilizer trade ''appears'' to have died out.

I make the case that the fertilizer trade is categorically not dead. If anything, the rational analysis reflects that the risk-reward is demonstrably attractive now.

However, I'm a serious investor. I know that when the share price moves down 14% in a month it's significant and investors get worried. And although I have skin in the space, I'll highlight the investment case in a dispassionate manner.

CVR Partners is a manufacturer of ammonia and urea ammonium nitrate fertilizer product.

As a reminder, nitrogen fertilizer products are used by farmers to improve the yield of corn.

As you can see below, the prices of corn are now higher than they were in 2010.

Incidentally, recall that in December 2010, when corn prices were this high, we had major instability that led to the Arab Spring.

The dynamics that got us here, with high food prices, are not going away any time soon.

What's more, if anything, the problems are now much less localized. This is now a global problem affecting everyone.

For example, the UK is typically thought of as one of the wealthiest countries in the world. Yet, there's a cost of living crisis where households are being forced to choose between ''eat or heat''.

For their part, CVR noted during the earnings call that

Formal and informal sanctions placed on exports products in individuals closely associated with Russian leadership by Western countries has dramatically reduced Russia's ability to export nitrogen, phosphate or potash.

Once again, all the evidence points in one direction, a very tight supply of nitrogen fertilizer.

Moreover, as you know, with natural gas prices in Europe going through the roof, the ability of European peers to economically produce nitrogen fertilizer is simply not on the cards.

You can't have ammonia production when natural gas costs in Europe are higher than what UAN prices go for, even if prices of corn and wheat are high, it's simply not viable for European peers.

For Q1 2022, CVR Partners reported $94 million of net income. However, keep in mind that the majority of Q1 took place before any impact from the Russian invasion was felt.

Consequently, I believe that CVR Partners could report approximately $450 to $500 million of net income in 2022.

This puts the stock priced at approximately 3x this year's EPS.

That being said, these are the main bearish arguments:

Both of these assertions have a grain of truth that would have kept investors safe in previous investment cycles. But I dare say, this time it's different.

When I talk with investors about investing in UAN, the feedback that I frequently hear is that the stock has moved up too quickly, and is now overdue for a pullback.

After reading this analysis, I believe that you can conclude that although the stock has taken a breather this past month, the thesis is not over. It's only getting started.

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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.