Still Riding Potash To $40 For 30% Gains

| About: Potash Corporation (POT)

Potash Corp. (NYSE:POT), after a wicked earnings report that I argued was already priced in, is on a rebound - technically and fundamentally. I took a long position on Potash's upcoming rebound, and it's one I intend on holding through dividends and until Potash makes its way up towards $40 again.

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Much of Potash's decline over the past 4 months was due to an announcement by Uralkali (OTC:URALL), another major potash player from Russia, of a coming price war - and in general, the company "not playing well with others."

In addition to the Uralkali mess that is now fizzing out, Potash reported earnings that were anything but ceremonious last month. The company posted a 45% year over year drop in 3rd quarter profit and lackluster sales, as the macro market uncertainty loomed over the sector. In addition, the company slashed its forecast for the year to $2-$2.20/share, from $2.45-$2.70. The current guidance is below what many analysts were expecting from the company. The stock reacted by moving down towards $30 on the news. I wrote about this in my last article, and staked my claim for taking a long position in Potash near $30.

Both of those negative catalysts are in the rear view mirror, slowly heading into the past.

Since then, and as you can see from the chart above, Potash has been in the midst of a slow and steady recovery - one that, long term, I believe is going to bring it back to its $40 levels, possibly as soon as January or February of 2014.

In addition, Potash was upgraded in early November by HSBC Global Research analyst Yonah Weisz, which helped Potash climb up from its earlier lows under $40 to its levels now near $32:

In the report, HSBC Global Research noted, "Investors have been battered by storms in all three nutrient sectors as major disruptions hit the broad fertiliser world in the past six months. As a result, time horizon and risk/reward have become much more important factors for investment decisions. Urea prices may have bottomed out, though lack near-term catalysts. Potash producers are still reeling, but we think the worst of the crisis has passed, and prices may rise in the medium term. The eventual return of Indian demand means phosphates have the clearest road to recovery, and this nutrient is our preferred of the three.

I conclude that Potash Corp. is being affected by some short-term volatility, and that traders who are willing to buy in now will be able to ride Potash back up to its previous levels in the $40 region for at least 30% gains plus the dividends.

Potash President Bill Doyle, agrees with me:

Boyle told reporters during the launch of an exhibition on the growth of the potash industry over the past 50 years that the current industry and market turmoil will have no lasting effects.

"In history, it will be seen as a blip," he said.

"As an industry, we are susceptible to short-term events."

A recent extremely well-written article by Achilles Research does well to sum up the long-term buying prospects of Potash, while ignoring the temporary fear related to Uralkali:

I believe the market is still too focused on the short-term pricing environment. Potash Corp. is a great long-term investment for investors who want to take advantage of short-term market disruptions. Potash Corp. remains a Strong contrarian BUY on pricing uncertainty, a great long-term industry outlook which should support pricing and continued pessimism in the analyst and investor community.

Fueled by a technical recovery, guided by excellent dividends, and catalyzed by an analyst upgrade that I believe is going to be foreshadowing for several more, I'm confident in my Potash long position and will continue to hold until the $40 region. Long term, it's not a question of "if," it's a question of "when."

Best of luck to all investors.

Disclosure: I am long POT. 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. Long POT through calls.