Seeking Alpha
Long only, growth, special situations, foreign companies
Profile| Send Message| ()  

It is hard to believe the accuracy of the numbers coming out of Tel Aviv for Israel Chemicals (ISCHF.PK) or the numbers coming out of the analysis of its results by Citigroup. But they make an incredibly strong case for the stock.

For example, its p/e ratio is 2.4 - I repeat, 2.4. It was 11.7 when we bought, but business has been fabulous and the stock market in Tel Aviv has been just as lousy as the rest of them. The yield is 17.5% vs 6% when we bought. Its Q3 net income at $846 million is up 122% year over year. That is 122%.

Here is some more. The debt (net of cash and liquid assets) is 11.8% of equity. Its free float is only 38% of outstanding shares as 52% are owned by Israel Corp. (the Ofer family) and another 10% by Potash of Saskatchewan (POT). It is the cheapest potash producer on earth.

Citi's target for the stock is NIS 85 although it is currently priced under NIS 20. Citi figures its dividend yield will hit 15.4%. You are allowed to add those numbers together and work out that your return will be 315% or so. ISCHF's profits are the highest of any Israeli company, even higher than those of Teva (TEVA).

The current price drop, of course, has a reason. There are intimations that sales of fertilizers will drop sharply in the current quarter. They always do, since it is winter in the developed world, but usually there are offsetting sales to the southern hemisphere, particularly Latin America. But the seizing up of trade credits has made it hard for Latino farmers to pay for potash. Moreover, other lines, notably boron specialty chemicals used for oil drilling and flame retardants, are suffering from the economic slump. U.S. farmers, burned by the burnout of corn ethanol, are delaying planting.

But, in 2009, the North American farmer will buy his fertilizer again. Indian farmers, growing ever more wheat and corn (for meeting new demand for protein) will be buying again, and ISCHF has a transport advantage shipping to India. In fact, Citi figures global fertilizer demand is growing 4-5% per year, whether or not there is a recession. (People have to eat.)

Israel and Jordan across the Dead Sea are the low-cost producers, shoveling the potash and phosphates up. If demand slackens, ISCHF does not have to worry about storing its fertilizers because the Negev Desert is at hand.

Now there is one risk, which readers should be warmed of. Should the Good Lord decide to again destroy Sodom and Gemorrah, the Israel Potash plants are the target; I am not sure about the Jordanian ones (Arab Potash Corp., otherwise a much more expensive stock).

I assume that there are more than 10 just men in the ISCHF company's facilities, and that the fire and brimstone will not hit the banks of the Dead Sea. (Other places are not covered by my hunch). But note that the destruction risk exists, not just from Heaven, but also from Iran and various Arab jihadis.

If you can stand political risk, ISCHF is the stock to buy: high yield; excellent prospects; low corporate or finance risk.

Disclosure: Vivian Lewis owns 100 shares of ISCHF bought at a much higher price and about 1000 of Teva. She owns no shares of POT.

Source: Israel Chemicals: Dramatically Underpriced