Potash, Mosaic Are Looking Fertile

Potash (POT) reported a blow-out quarter last week, beating estimates by a mile. Earnings tripled over last year and they also raised guidance. The stock has pulled back from a recent high of around $215 to $195 simply because it had run up over 100% since Jan 22nd of this year. The company upped their guidance and it doesn't look like demand is waning. I believe this weakness is a good reason to buy some Potash, although I wouldn't be surprised if the stock pulls down to the $175 mark, where you should consider buying more.

Similarly, Mosaic (MOS) has seen tremendous growth in their business and the stock, which was at $60 in November of last year, is down from a recent high of around $140 and trading today in the low $120's. This 11% decline is a great opportunity to open a position and buy if it dips down to the $110-$115 mark.

Both of these companies are in the agriculture/fertilizer business and with biodiesel becoming increasingly popular, they are not only a play on farming, agriculture and food, but also on energy. Both stocks trade at around 12 times future earnings and look like they have some ways to run. But if you are nervous about them and would rather buy an ETF instead, (MOO) is the one that has exposure to both Potash and Mosaic.

-- Faisal Laljee

Full Disclosure: I own POT but my cost basis is significantly lower. I am looking to buy MOS but have not put in my order yet. My opinions and positions on these stocks can change anytime without notice.

Comments

[Paul Price]

Great insight.

Always good to buy shares AFTER they've just finished tripling in price.

[stacked up]

These 2 stellar stocks now face a roadblock: Namely, the Fed's most likely, 1 more time cut in rates then out, presumed policy going forward as of now.
POT has a 52 week low of $58.87 - currently $198
MOS has a 52 week low of $28.85 - currently $ 124
(That's alot of downside risk folks )
The dollar which is going to rally against the overpriced Euro will take a serious bite out of both MOS and POT. While arguments of food shortages, the astronomical price of potash, etc have validity ..These 2 are going to nap for a while. Matter of fact, they should be going into a deep sleep. If the Fed is serious about our "toilet paper" dollar gaining some fiscal respect, the Fed has to chill out. In that propable event, these 2 stocks are not the way to play.. ..In my humble opinion, of course !
Now, isn't this a far better written article on the prospects of MOS and POT than this pathetically myopic article ?
(y)
(N)

[Paul Price]

Yes. Absolutely.

[Amidwesternneighbor]

Re. the Fed's coming moves...POT is a Canadian company. A strengthening dollar will make POT cheaper for U.S. farmers. How is that not a good thing for POT, the stock?

[Gunslinger]

N

[FertilizerMaker]

Food for thought:

less then2 years ago Mosaic was selling fertilizer at $200 a short ton w/ a cost of about $33 to make, today its selling for $12oo+ a ton w/ a cost of about $38-40 to make. The demand is high and the supply is low, its not being hoarded like some stories I've read.

[sorrentocapital]

First, the targetted fed funds rate will most likely go DOWN again tomorrow. Second, rates will likely stay flat for a protracted period thereafter. Third, even if the fed targets a higher fed funds rate, in the future, it will be far in the future. Housing is the absolute make or break issue. Higher interest rates skins that cat, for certain. The inflation that is at risk today can not be fixed with higher rates or stronger dollars. A little, yes. However, the primary driver of inflation is worldwide demand. It is what it is. All we can do is increase supply to meet that demand (hint- you can use something to help grow more grain per acre......it starts with an f).

Ok- on the issue. The strengthening (assuming that will happen) of the USD will have little affect on fertilizer for crops. Who buys this fertilizer? The only currency that will deflate relative to the USD will likely be the Euro. The Yuan WILL not deflate relative to the USD. In fact, it will continue to strengthen. The Rouble will continue to strengthen. The Real will continue to strengthen. The canadian dollar will not deflate much as it is also a petro currency. As for companies like POT (Canada), do you think they will sell more or less to America when the USD is stronger?? Let's see, dollar stronger vs. Canadian dollar= things from Canada on sale.....I'm guessing they sell more, since it's on sale.

In my opinion, that's a very illogical argument, but sadly, one that I have heard before.

[sorrentocapital]

......Oh, the comment above was in response to Stacked Up's comment. Sorry, just reading it is confusing if you don't know to which topic/comment I'm countering.

[The YellowRose StreetBeat]

I have never ever ever ever heard a CC like POT last one. I mean, it was beyond the point of "great quarter guys". It was: we've been waiting 20 years as a company for this moment to arrive and now it has. The growth here will be scary good. Even with the run-up.

Yet POT will likely fall due to one major factor: Sector Rotation. AG and Oil sectors have been the place the big money has chosen as the safe haven in recent times. They have run enormously and the money has to go elsewhere for a bit. In fact I think that POT and MOS and AGU would have fallen further if not for the unbelievable quarters. If your willing to deal with some short-term stock price drops the dips here represent buying opportunities. However I like the author would buy in pieces here... I am considering opening a small position here and would add more if it drops to the 170s or lower...

[fodi MD.]

After the big boys wash out you little guys they will buy them back in a frenzy. Thats how it always works.

[sorrentocapital]

fodi, that's very possible, which is why value and contrary investing strategies rarely underperform any other style. Human nature is to buy the hype. 4 times out of 5, the hype is there only to convince YOU to buy the fast money's shares.

[Marol]

OK, I'm confused. N. Stack and Sorrento, I'm left not understanding the influence of US dollar (partly bec of the sarcasm). Could someone explain?

And Rosesr, I don't understand why you would buy at 195 and hold, thinking it might drop to the $170s or lower. Could you explain, as this strategy has been confusing me generally.

Thanks all, from the Novice (maybe I should change my moniker?).

[jeff a]

I do think there will be a sector rotation but despite bullish sentiment, financial, consumer discretionary and tech sectors worry me even if the talking heads are saying we hit bottom. Even though I got MOS at $100 every time I sell stuff off because of corrections, I regret it later. Besides, I spend 3 months a year in China... the demand for raw materials and ag is staggering.

[pitchforkpaul]

CALM is making more profit than Apple! I want my money in companies that are making money and BG, MOS, MON, AGU, FEED are making large profits! I am not buy the bank stocks on the if come! The dollar rose all of .01 WOW! We will still sell a lot of fertilizer and eggs, and the prices are still rising for eggs, corn, wheat , & soybeans! These stocks will come back! I don't know when but I do know why!

[newport-Q]

I don’t buy the sector rotation out of energy and agriculture argument. The hype of possible new leadership in financials and tech is without real conviction. The financials will have several quarters reported losses and tech is out of season and hit by a strapped consumer.

Still lower rates are possible and a 2% FF rate isn’t going to boost the dollar. Forget about the ECB cutting rates to accommodate a weakening dollar. So I don’t see oil, priced in US dollars, coming down or Ag stocks retreating at the start of a growing season fraught with global food shortages.