By David Berman
Tiernan Ray, at Barron’s Stocks To Watch Today, has an interesting interview with Charles Neivert, an analyst at Dahlman Rose & Co. Mr. Neivert is a mining analyst who also follows agriculture stocks, and so he naturally had some interesting things to say about Potash Corp. of Saskatchewan Inc. (POT). He believes that the entire agriculture sector is a trading opportunity, rather than a buy-and-hold situation for long-term investors. That’s because grain prices have risen to the point where they are difficult to sustain. A shift in crop yields, due to better weather, could reverse some of these gains and send fertilizer prices down as well.
Meanwhile, he argues that BHP Billiton Ltd.’s (BHP) decision to withdraw its takeover offer for Potash Corp. of Saskatchewan Inc. following resistance from the Canadian government is a net negative for the stock.
“To me, something like that, where government steps in to stop it, that comes with a price,” he tells Mr. Ray. “If there is little to no chance any particular company can be bought out, then the shares will never have a buyout premium. That’s definitely a negative for [Potash Corp.’s] share price.”
Since the scuttling of the BHP deal, Potash Corp. shares have actually held up remarkably well. In New York on Tuesday, the shares were down more than 2 per cent in late afternoon trading, but remain 3 per cent above BHP’s initial offer of $130 a share.
However, the trend isn’t a friend: Potash Corp. shares are now at their lowest level since the day before BHP announced its intentions. They are down about 13 per cent from their highs in August, when investors were apparently convinced that BHP would either sweeten its initial $38.6-billion offer or another bidder would step forward.
At the time, Potash Corp.’s chief executive, Bill Doyle, said that BHP’s offer ‘grossly’ undervalued the company. Later, he said that the company’s value “far exceeds $170 per share.”