UBS Raises PotashCorp and Agrium's Price Targets - Again

Either, UBS is still behind the times, or they have finally started creating earnings models that are at least somewhat accurate. The only reason I point this out is because they have raised price targets on Potash (POT) and Agrium (AGU) yet again.

Just last month, UBS raised its price target on Potash from $250 to $285. Then, on Friday (not even a month later), they wer out raising their price target on Potash from $285 to $320.

Additionally, a month ago UBS raised the target on Agrium (AGU). They raised its price target on the stock from $95 to $118. Then on Friday, not even a month later,  they were out boosting price targets on the name, this time from $118 to $130.

Therefore, in two months' time, UBS has raised POT's price target from $250 to $320 and AGU's price target from $95 to $130.

Clearly, some people (analysts, ahem) have been underestimating the true pricing power the fertilizer names have. Very limited supply + very strong demand = fertilizer company pricing power. It’s really a simple concept, yet analysts and investment firms are just now latching on to the true potential these producers have. The prices simply keep going up because there is huge demand for it worldwide. Not to mention, an already limited supply becomes that more valuable because new supply cannot be brought to market for years (2012-2015) due to how long it takes to bring a new potash mine online.

Combine all of the above with the fact that these fertilizer companies are now selling potash to Asian buyers at a spot price of $1000 per tonne and you've got a huge recipe for success. Even with a slumping American economy and an overall bear market, there are bright spots to be found. Use any weakness in these names to add (or establish) your position.

This is the definition of secular growth.

Disclosure: None

Comments

[Jim Punkroc...:]

they aren't selling at $1,000 per tonne yet. they are raising their prices yes but the market has yet to say if they are willing to pay it. the smallest drop in crop prices and farmers will cut back fast. they don't need potash. cheaper ferts are available but due to high prices right now they are willing to pay up for potash. this trade seems way more risky to me than you seem to think it is.

2008 Jul 20 07:14 AM

[multibagger:]

Potash will sell for $1000, and several very large contracts sold ~$700 months ago. The demand/supply balance is in favor of POT, MOS, CF, and AGU, and this will not change much for at least 2-3 years due to barriers to entry or expansion. Earnings announcements in the next two weeks will support the UBS upgrades, which are still conservative.

2008 Jul 20 09:22 AM

[megiddo666:]

Another analyst perspective is Moody's whose "sell price" on POT was $410, the last time I checked. Seems like their model may be more aggressive, but given that there is still a global need to grow more grain, etc. It is questionable demand will fall off soon.

The Chinese took the price increase this year from Cantopex, and increases to cover the costs of POT's production boost need factored in...All in all, I agree with the arguement that high demand and limited supply will support pricing for some time.

Only when grain supplies get back to what support global food security and grain prices fall, will you potentially see lower fert. price increases.

2008 Jul 20 12:49 PM

[Barry Isaacs:]

Author correct and JP incorrect with regard to current potash selling prices:

Canpotex Announces Higher Spot Market Pricing
Canpotex confirms that it has now concluded significant volumes for shipment to Asian spot markets in the fourth quarter at a price level of USD 1000 for standard grade material ($1025 for granular grade). As a result, Canpotex is advising it's customers that all new sales for shipment through the balance of 2008 will be priced at these new and higher levels. The new pricing will also apply to all new sales to customers in Brazil and Latin America.

These new and higher price levels are supported by continued strong offshore potash demand and by the historically low potash working inventories that have resulted from record demand this year. These factors have created an extremely tight supply situation for potash and this supply/demand scenario is expected to continue into 2009.

Perhaps JP would now like to revise and extend his remarks.

2008 Jul 20 02:21 PM

[anopenmind:]

April 24 Morningstar gave POT as "consider selling" price of $405. All things considered, appears most consider it soon to be worth far more than the $209 July 18; "soon" not being out to 2012 when added capacity could be brought on stream, all while demand grows. "Finite stuff from the ground" seems likely investor choice as USA may be in multi-year economic drought, while larger populated nations prosper with internal demand & prosperity.

2008 Jul 20 02:27 PM

[will:]

Wh gives two hots about UBS, Canaccord, LEH, RBC, their raising target prices on Potash is irrelevant. What's the average price target now 375? Who cares, Potash has taken a beating last week and everytime these clowns increase their price target Potash goes down another 5%. Why? Who's walking the talk? If they were walking their talk we would be over 250 right now. Correct? Then why aren't we? Analysts steal shares by upgrading price targets then selling everything they own into any rally. Potash goes from 230 to 205 Thursday after a 425 price target increase. Spare me! Potash can't even break 215 Friday after UBS and RBC raise their targets to 350 and 325. Spare me! It's a game and Potash Management lets these analysts get away with their BS games and who gets punished? The average investor, the little guy, why? Because the little guy has no chance against the UBS/RBC/Canacord crooks coupled with a Leadership Team at Potash that doesn't have the balls to defend shareholders against these short attacks. Doyle talks a good game but in the end the only people making money on Potash is Doyle and the crooked analysts. You know what you all can do with your price target increases to 425, 375, 350, and then some, You can stick them where the sun don't shine!

2008 Jul 20 05:47 PM

[will:]

Potash should be trading over 250+ right now. We have had more analysts price target increases the last 2 weeks than over the past month and yet Potash is sitting at a low level of 210. Ask yourself why then realize you have been snookered once again by the analysts who were the very ones that upgraded Potash in the 1st place. Thats how they make their money by taking yours. Analysts are thieves and coupled with their hedge fund buddies shorting the stock, you can't win. Price target increases 101!

2008 Jul 20 06:15 PM

[User 229321:]

it wasnt the analysts, but those with major stakes in the options that drove the prices down. look at the growth over the past few months and then take a look at the options pricing before that growth. a few big holders would have lost their arses. so short with the big money to drive the price down and win on the options. if you had the money, wouldnt you?

2008 Jul 20 07:25 PM

[User 229321:]

btw. look for a nice price jump next week if oil goes back up and the reporting financials take a hit. some money left to jump on the financial bandwagon. it will be back!!!!

2008 Jul 20 07:28 PM

[will:]

I say F Potash! They have left us holding the bag while Doyle and his merrymen clean up! Should have invested in Morgan Stanley, Merrill, Citigroup where they lose money and their shares rocket!

2008 Jul 20 08:31 PM

[Alexander77:]

Great article,very well though out points on the bear market and how POT and AGU have very strong fundamentals for years to come!!

2008 Jul 21 12:54 AM

[cyerman:]

CRP is modified by Congress and the DOA may permit the inclusion of millions of acres currently reserved to support wildlife and environmental objectives. My question: is this change important enough to at first increase the demand for potash as more acres come under under cultivation but then with big time increaes in production would it potentially drive down commodity prices. Variables like Argentina, Australia China and the weather holding within historical norms. Might that big increase in production then drive down the demand for potash and other fertilizer products as commodity prices drop? Or is it just too problematic to rely on any changes in CRP to affect the demand side for potash and other fertilizers?

2008 Jul 21 03:06 AM

[Carl Martin:]

JimPunkrockford, I'm sorry but I can't agree with your view of farmers using other cheaper fertilizers, or cutting back on Potash. The active ingredient in Potash (KCL) is Potassium (K) an element, that cannot be substituted for, as it is an element. In Phosphates, same story. Phosphorous (P) is also an element. Nitrogen (N) also same story. These are the three main fertilizers. The three lesser fertilizers are calcium (CA), sulfur (S), and Magnesium (Mg), also elements. None of these can be replaced by another to achieve a positive economic effect because they are all unique elements. All are necessary for optimum plant growth, but there is still much more. It's the correct balance between them all, that gives the farmer his pay off. Food scientists say that the world needs to double it's use of Potash to get the results needed to feed the whole world. It's the world wide lack of Potash used, that is causing the most problems. Therefore the best solution is to invest in Potash. The best places to get more info are potashcorp.com and monsanto.com, then you will see the light. North American farmers make about three dollars for every dollar they INVEST IN Potash. The rest of the world's farmers can make much more, up to about 10 dollars per dollar invested, because their fields are very depleted of Potassium, because they have never used enough of it, because many of them still don't know what Potassium actually is, and because they don't have any Potash deposits (India), or very few (China,Brazil, Indonesia, and most other countries.)

2008 Jul 21 08:04 AM

[Carl Martin:]

WILL, I can't agree with your reasoning, but I feel your anger and frustration. It seems to be overpowering your power of reasoning. Not many people can reason well, when anger is in control of the mind. Try calming down a little and reading this article and blogs over again, perhaps on another day. There is a lot of valuble information being offered to you free of any charge.The price of a company's stock at any moment only represents the balance of supply and demand for the stock at that moment. The price is merely the mechanism that ensures the relative balance between supply and demand. Markets are only as rational as the people who buy and sell in them. Do you actually think that we investor humanoids are rational? Do you think that the going price of any stock somehow does, or should, represent the true value of the company? When a company's stock price is going down, at the same time that the news flow is very positive, and the company and industry fundamentals are very strong, rational investors see that as a great buying opportunity. What you see now is a just a market shake out, and all the scared uninformed bears are selling to the calm well informed bulls. One of those bulls buying heavily is the management of Potash Corp, not with their own money, but with the shareholders money. We who are long POT don't have to do anything. Management does it for us by buying the stock of the scared and uninformed bears, at bargain prices during market turndowns, which is the subject of my next article. If you really want to get angry, try clicking on the July 1st article "The Better Performing Half Of Potash Corp" and subsequent articles. That will really make your day, if anger is what you like best. Second quarter results are due on Thursday, don't miss out on all the fun!!!

2008 Jul 21 08:49 AM

[will:]

Oh no we are in trouble this morning! Another upgrade this time from JMP significantly raising 2009 EPS and I mean significantly. This can only mean one thing today: Man the lifeboats, we are going down! JPM joins the recent list of crooked analysts who upgraded their POTASH price targets last week including Canacord, UBS, RBC, LEH and now JPM. They will sell their shares into any rally today leaving the little people to lose their shirts again. Don't fall for the BS upgrades!

2008 Jul 21 08:52 AM

[Carl Martin:]

CYERMAN, No to your first two questions, yes to your third. Your line of thinking and questioning is very good and correct,so keep up the good work, but you are mostly thinking USA. Just use the same type of thinking and ask all the same type of questions, as applied to the whole world. Then you will get the answers you are looking for.

2008 Jul 21 09:03 AM

[Jake2:]

Common Poorwill: Our smallest nightjar . . . Voice: a mellow poor-will. Habitat: desert, chaparral . . . other arid uplands. Has been discovered hibernating in the desert . . . surviving long cold spells in a torpid condition . . . Most often seen sitting on roads at night (some say, about to be run over by a passing trucks). God save poor will.

2008 Jul 21 11:56 AM

[will:]

This stock should be over 250 right now. Don't get wet because its up 7 today. It will be back down to 210 in no time.

2008 Jul 21 01:01 PM

[cashking:]

Potash stocks loss value last week in spite of improving prices/production/dema... due to oil price decline. It got lumped in worth rest of commodities. Consider this your last chance to get in on the next cycle about the 50 day moving average.

Front page article on food shortage on times.com, and oil sready is helping to restore confidence in this play.

2008 Jul 21 02:34 PM

[cashking:]

>This stock should be over 250 right now

No this is wrong. It is recycling exactly as it normally does with respect to the 50 day moving average. It should test new highs in about 2-3 weeks. The double kiss off the 50 dma will probably mean it will climb to a significantly higher high. I'm looking for 275 from POT.TO

2008 Jul 21 02:37 PM

[User 223471:]

SEE ANOTHER GrEAT fertilizer COMPANY: ICL.TA
some time ull find it as: ichem.TA

2008 Jul 21 04:30 PM