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Much has been written of late about the demise of the fertilizer complex. I have felt all along that such talk has been grossly premature when viewed in the context of the "big picture," as the landscape has not materially changed, and, in my view, for POT in particular. Recent pain aside, its recent correction will almost certainly be viewed as a much-needed adjustment to its spectacular rise.
With the likelihood of the recent (and massive) hedge fund position liquidations (mostly) behind us, it's probable that the market will again begin to value this stock based on its fundamental merits, and bid it significantly higher over the coming months.
Aside from the fundamentals, I'm particularly comforted by the company's aggressive stock buy-back plans, where it intends to repurchase 10% of float. This follows a just-completed plan under which it repurchased and retired nearly 16 million shares. Supply/demand can be a beautiful thing.
I'll begin layering up my POT position cautiously.
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guliamo
Sep 22 at 11:58 ET
Hi dosman,
How do you figure the stock price has winded down?
It's still +100% for the last year and P/E is at 27. It feels a bit scary to me.
Earnings growth is 2.5 times the revenue growth percentage which tells me prices are still unnaturally high.
If population hasn't doubled, why have prices doubled?
Btw,
Bravo on your chart's performance over the past week - quite impressive ;)
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dosman
Sep 22 at 12:51 ET
Hey, Guliamo--and thanks for the kudos. Still early in the game, though...
A word about my typical selection methodology--I don't put much stock (pardon the pun) in either a company's book value, dividends, or PE ratio when considering my purchases (in fact, over the past 50 years, PE ratios have had little, it any, predictive value in spotting the market's best performers).
The notable EXCEPTION to application of my criteria has been my unrepenting selection of precious metals and miners--I simply think owning them is a no-brainer at this point in American history, and in this recent turmoil, I've averaged down aggressively.
I concentrate more so on profit growth, price and volume action, and where the company stands in relation to its industry when making my stock buying decisions.
For its part, POT stands atop its space, has tremendous pricing power--and the company will once again renegotiate product price with the Chinese in the fourth quarter, perhaps as much as another 100%. But most importantly: the story remains: escalating worldwide demand for grains continues, and real income growth in emerging markets is tangible.
In terms of another double from here? I don't know. For now, my money is with the trend.
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dirtyharry
Sep 22 at 11:49 ET
I like CF. I know's it's not the exact same product as POT but I feel it's a good choice in place of POT in terms of valuation and even technically, at the moment.
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guliamo
Sep 23 at 2:29 ET
I completely agree with your outlook on basic/raw materials. More than half of my portfolio is in everything from natural gas to timber. These are "Buy and Hold" properties as far as I'm concerned.
I don't know much about Potash's negotiating power. I guess I'm wondering why, with so many horses to bet on, this sector deserves an investment. The price has run up so much that my natural tendency is to look for growth elsewhere.
That said, i'm not arguing with someone who popped a daily gain of 8.5% on a day the market drops down by 4% - you're my hero!... at least for the day ;)