April 29

POT: PotashCorp Stock Buy


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Last week I bought some POT. Don’t worry, it’s legal. I invested in the Potash Corp of Saskatchewan Inc., commonly called PotashCorp. The company recently announced a 34% dividend cut, which in most cases is a sign to stay away. However, even after the dividend cut, PotashCorp is still offering an annual yield of 5.57%. The cut was followed by a big dip in stock price. PotashCorp 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 PotashCorp 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. It’s origin comes from the collection of wood ash in metal pots. Potassium is the 7th most common element in the earths 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 a 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.

PotashCorp 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

PotashCorp 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 PotashCorp.

The F.A.S.T Graph below shows that PotashCorp 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, PotashCorp is undervalued.

PotashCorp 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 analyst 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 PotashCorp will be needed to fulfill potash demand.

What do you think of my PotashCorp buy? Are you buying any stocks?

Full Disclosure: Long POT


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