cstauffer

Potash's Negative Price Implications

Your comments are very insightful and extremely useful in an environment when information is freeflowing, but not usually all that usefull without proper context.


On Jul 13 10:58 PM Barry Isaacs wrote:

> Silvinit is a desperate, near bankrupt company that could be the
> subject of a takeover within the next 3 months which, as it happens,
> is the time period during which they cannot make any more potash
> sales at any price because they have committed themselves to delivering
> all that they can deliver during such period. If they deliver.<br/>The
> timing of all this has to make one wonder. I am not even sure how
> real it is but assuming it is a 'reality' that must be taken into
> account, I remain doubtful that it will affect Canpotex or BPC pricing
> as far as negotiations with India, China and Brazil are concerned.
> Canpotex closed contract deals already with Korea, Taiwan and Japan
> at roughly $700 per ton and I will therefore be surprised if the
> price can be pushed much lower. Also, keep in mind that Silvinit
> has the lowest quality potash in the industry resulting in about
> 30% less yield than say a comparable amount of KCl coming out of
> Saskatchewan. I am a long term holder and am looking forward to at
> least the next 6 years during which time I believe investments like
> POT will vastly outperform the market.

Potash: Thesis versus Reality Yet Again

I would hardly say the POT has been reporting "poor" numbers for three quarters in a world where just producing a profit is reason for a sigh of relief. That being said, valuing POT or any other owner of a scarce but necessary commodity based upon quarterly profits is foolish. That being said, I am glad that this is ther way traders think because it gives those of us who focus on a longer time horizon than just next quarter opportunties to purchase shares of these companies at prices well below replacement value, intrinsic value or take out value. It has recently been stated that if BHP wanted to buy POT they would have to pay upwards of $150 per share. I was recently at an investor conference put on by AGU where it was illustrated very convincingly that AGU was trading at just 43% of replacement value.

The Real Reasons Fertilizer Stocks Are In the Dirt

BxCapricorn hit the nail on the head. However, as a fundamentally based portfolio manager, these situations allow us to either get into companies such as MOS at prices never imagined or average down existing positions, thus building a long position at a much lower cost basis.

The Real Reasons Fertilizer Stocks Are In the Dirt

Thanks for the posts. I am not alone, my sanity is intact. This market has ceased being a functional market and many people are trying to draw conclusions from the price movements of stocks during a time where forced selling is overwhelming rationale buying and pushing stock prices to unimaginal levels.

The Real Reasons Fertilizer Stocks Are In the Dirt

Fundamental analysis of the company behind a given stock is the only assessment of value for a given stock that is based in known inputs. Momentum caused by de-leveraging, sector rotation caused by program trades or false hope of a recovery in out of favor stocks or simply over-reaction to various reports that contradict long-term trends are much too unpredictable indicators for most investors to untilize. There is much more certainty associated with taking a company such as Mosaic, which today sells for a 2.5 forward PE and assign much more conservative earnings expectations and multiple to project a fair valuation for the stock. If this is done, it becomes very evident that the price of the stock today is significantly undervalued. These stocks are not dot.com stocks which had no earnings, no assets and no proven market. These stocks have substantial assets, strong balance sheets and an end market that is critical to the survival of the human race.

The Real Reasons Fertilizer Stocks Are In the Dirt

It is hard to argue that there was a lot of momentum in these stocks during the first half of 2008 and that for that reason expectations were too high. However, these stocks never really got significantly over-valued based upon even more realistic growth prospects. I believe that there is more a play here in recent price moves than a high momentum sector falling back to earth. If you take a look at non-fertilizer agriculture stocks such as AG, DE, and MON, they are also being hit extremely hard, while the world's grain inventories are still sitting at record lows. It is hard for me to believe that there has been significant demand destruction in the world over the last two months in soybean, wheat & corn to account for even a fraction of the multiple contraction that we have witnessed recently in agriculture stocks.