Stock Buy: Potash Corp.

| About: Potash Corporation (POT)

Last week I bought some POT. Don't worry, it's legal. I invested in the Potash Corp of Saskatchewan Inc., commonly called Potash Corp. The company recently announced a 34% dividend cut, which in most cases is a sign to stay away. However, even after the dividend cut, Potash Corp. is still offering an annual yield of 5.57%. The cut was followed by a big dip in stock price. Potash Corp.'s stock fell to $14.64 a share in January and is now trading at $17.61. I wanted to buy in January, but I was waiting to see if the stock would fall further. In hindsight, I should've bought this stock 2 months ago. I bought 85 shares of Potash Corp. at $17.96 per share, totaling $1,527.24.

What is Potash?

Potash is the common term for nutrient forms of the element potassium (K). The name is centuries old. Its origin comes from the collection of wood ash in metal pots. Potassium is the 7th most common element in the earth's crust. Large potash bearing rock deposits occur in many regions of the world, deriving from the minerals in ancient seas which dried up millions of years ago. Potash is used in agriculture as fertilizer to make sure healthy and nutritious plant growth. Potash makes a positive contribution to the environment by balancing other nutrients, especially nitrate, to make sure they are taken-up and used by plants efficiently.

Potash Corp. Overview

Potash Corporation of Saskatchewan Inc. is a fertilizer company. The company operates in three business segments: potash, nitrogen and phosphate. The company owns and operates five potash operations in Saskatchewan and one in New Brunswick. Its nitrogen operations involve the production of nitrogen fertilizers and nitrogen feed and industrial products, including ammonia, urea, nitrogen solutions, ammonium nitrate and nitric acid. It has nitrogen facilities in Georgia, Louisiana, Ohio and Trinidad. The company's phosphate operations include the manufacture and sale of solid and liquid phosphate fertilizers, phosphate feed and industrial acid, which is used in food products and industrial processes. It has phosphate mines and mineral processing plant complexes in Florida and North Carolina. The company also has four phosphate feed plants in the United States and produce phosphoric acid at its Geismar, Louisiana, facility. (Source: www.schwab.com)

Potash Corp. Stock Valuation

  • S&P Capital IQ ranks POT 3 stars, with a 12-month price target of $15.
  • Morningstar ranks POT 4 stars, with a fair value calculation of $24.

Clearly, Morningstar and S&P Capital IQ analyst are not in agreement on Potash Corp.

The F.A.S.T Graph below shows that Potash Corp. is below the orange and blue lines. For those of you unfamiliar with this tool, when the black line falls below the orange line this indicates a stock is trading below the market average P/E Ratio of 15. If the black line falls below the blue line, this indicates a stock is undervalued and is trading below its normal P/E ratio. Per the graph, over the past 10 years, POT has traded at an average P/E of 18.8. Today, POT is trading at a 13.4 P/E ratio.

Per the graph, Potash Corp. is undervalued.

Click to enlarge

Potash Corp. Takeaways

This stock buy is in a sector where I have limited exposure, so I'm happy to add it to my stock portfolio. Most analysts like this stock in the long run, but they see near-term headwinds. I agree. Potash may hover at its current stock price for a while, but I really like my long-term prospects. As countries like India and China look for ways to stretch their food supply, a company like Potash Corp. will be needed to fulfill potash demand.

What do you think of my Potash Corp. buy? Are you buying any stocks?

Full Disclosure: Long POT