Potash Corp. Looks Good on the Pullback

Late last week, the commodities saw a pullback due to the global gloom and doom theory posited by the paranoid and super risk averse. Due to this pullback, I think that a lot of the commodity names are looking very attractive right now, and I would recommend taking this opportunity to start/add to your positions in some of the big commodity names. One stock I feel is particularly attractive at these levels is Potash of Saskatchewan (POT). 

POT is the world’s largest producer of fertilizer and produces 23% of the world’s supply. Interestingly enough, the company also controls 55% of the world’s unused supply, which it has strategically kept offline in order to keep fertilizer prices high. Does that tactic sound familiar? It should – it’s what the Saudis are doing to oil. That is why I like to think of POT as the Saudi Arabia of fertilizer. 

I like POT because it is a great way to play the global agriculture boom. People around the world are eating more and better. The Chinese are starting to incorporate more protein in their diets in the form of soy. As a middle class surfaces throughout the emerging markets, demand for food will increase exponentially. POT is in prime position to cash in on this demand for food.  

The global agriculture party- like the commodity boom in general – has been going on from quite some time now. But with the most recent pullback – from a 52 week high of 241 on June 19^th to 210 today – has created a good opportunity to jump on the bandwagon.  

Let’s Look at the Numbers 

Potash is already up a lot, 163% in the last 52 weeks, but I still think there is room to run. The F P/E comes in at about 10.39 (10.78 – 10 depending on the analyst), which is very attractive for a company that the S&P predicts will realize a CAGR of 35% over the next 3 years. This $71 billion market capitalization company also sports a 26.86 % profit margin and a healthy current ratio of 1.45.  

Why It’s Undervalued 

I think POT is undervalued because of the recent pullback. I believe that the pullback is a result of some profit taking but is mainly due to a shift in expectations of global growth. There has been some recent talk of a global recession and the significant global demand destruction that will result from inflation combating central banks. While I think the global economy may slow from its recent historic steroidal growth, I in no way think that the party is over.  

Conclusion 

I like the agriculture sector and I like Potash of Saskatchewan, but the stock has run up for a while now. I would buy this one on the most recent pullback, but not all at once. More likely than not we have not seen the absolute bottom for POT, but I am comfortable starting to nibble at 210.  

If you have any questions/comments/just want to tell me to go to hell – feel free to e-mail me at [e-mail] 

Also – never invest on someone else’s advice – do you own research. 

Disclosures:At the time of this article I have no positions, but am planning to be long POT in the near future. 

Comments

[David White:]

I agree with your sentiment. If the market continues its downward spiral POT seems likely to follow it at least for a while. However, POT has significant support at 208. It is also currently bouncing off of its 50-day moving average. The last 2 times it has done this it has risen substantially over the following 2 week period. I am tentatively expecting a repeat performance. Of course, this is likely dependent on the larger market going upward or at least holding steady.

2008 Jul 07 08:32 AM

[David White:]

I note the last two times POT bounced off its 50-day moving average were in Jan. and Mar. of this year as the market was finding bottoms. I am worried that we have not yet seen the VIX spike that marked the bottoms in those previous two cases. Still I am bullish on POT. They are bringing more of their reserve POT capacity online in the near future, and they expect to be able to sell all of it at high prices. Their CEO sees a very rosy future. He should also be trying hard not to mislead stockholders as this would engender lawsuits. With him being publically this bullish, one has to think the likelihood of a bright future for this stock is very high.

2008 Jul 07 08:46 AM

[David White:]

I should also note that Dr. Duru today in an article about the VIX markign bottoms implied that the T2108 (a guage which follows the percentage of NYSE stocks moving below their 40-day moving averages) may be marking this bottom. Apparently there were significant instances in which the VIX did not have to spike in the manner of the Jan. and Mar. bottoms in order for the market to put in a bottom.

2008 Jul 07 08:58 AM

[Alex T:]

Do you also believe that IPI will also benefit from POT?

2008 Jul 07 09:47 AM

[LT Investor:]

I hope you are right (on the long-term up trend) - I got in POT at 220 last week. Not as good a price as now but I hope it won't matter much when POT resumes its run.

2008 Jul 07 12:23 PM

[windinmyface2:]

I think you hit it right about the gloom and doom, and I think it hurts the market more than anything else. There will be much more of it to come, because the Dem. controlled media wants it to prop up the coming election. I also think there has been some sell off profit taking, but that is normal. Its all the gloom that puts a damper on the market. My wife being Chinese, and been to China a few times, I can tell you they love to eat more than anything else, and the streets are jambed with foods of all kinds. The Chinese are growing at high speed, and so is their demand for food. With more crops going to fuel, and the ever demand for more food, fertilizer will play an important part in the world agriculturea market. Don't let the doom, and gloom articles scare you away.

2008 Jul 07 12:52 PM

[Jerry Dill:]

I agree with your statements. I believe that POT will be on a rise and as long as the economy continues to drop you can probably see a positive upward trend in the stock.

I didn't know that they held 55% of the world's fertilizer. It kind of sounds like debeer's as well.

2008 Jul 07 02:21 PM

[windinmyface2:]

I had read some where that they had 75% of the worlds potash?

2008 Jul 07 04:04 PM

[Terrance:]

"I had read some where that they had 75% of the worlds potash"

**In this video < www.cnbc.com/id/158402... >
It mentions that POTash holds 75% of the world reserve of Potash.

2008 Jul 07 08:10 PM

[JR123:]

Here in south Texas we found out, by accident, by growing organic rice for a higher profit margin, that we actually got higher yields by avoiding the use of all chemicals. Just goes to show ya, when ya make an assumption, ...

2008 Jul 08 12:01 AM

[User 210225:]

Potash will soon be @ it's highest levels due to worldwide expanding need for food!!!

2008 Jul 08 11:21 AM

[windinmyface2:]

Stick it out. It will bounce back, and more.

2008 Jul 08 11:33 AM

[User 223471:]

Also see Another got stock: Chim.Ta or in another simble: icL.Ta
A VRY big Ag comp.

2008 Jul 08 06:35 PM