Friday, February 8, 2008

In Focus: Potash Corporation of Saskatchewan Inc. (POT)

Today begins the In Focus series where we take a closer look at selected stocks. The first stock we're profiling is Potash Corporation of Saskatchewan Inc. (POT). Feel free to request a stock to be profiled on our site.

The Basics

Based in Saskatchewan, Canada, Potash Corporation of Saskatchewan Inc. (POT) describes itself as an "integrated fertilizer and related industrial and feed products company." Currently, POT accounts for 15% of global potash production. The company produces its potash from 7 mines, six of which are located in Saskatchewan, and one is located in New Brunswick. Potash is used primarily as a fertilizer in agricultural production to resolve a potassium nutrient deficiency, but it is also used in soap and glass manufacturing.


As of February 8, 2008, POT is trading at a P/E ratio of 40.2. With a market capitalization of 43.6 billion dollars, it is second only to Monsanto (MON) in the agricultural products sector. The company posts quarterly dividends with a present annual yield of 0.26%. During the 4th quarter of 2007, the company earned 1.16 per share, more than doubling earnings from the previous year and beating expectations.

Our Verdict

We currently rate Potash Corporation of Saskatchewan (POT) as a buy. The agricultural sector is positioned to have a strong showing against the volatile market of the next few months. Demand for fertilizer should remain strong regardless of economic conditions. POT also holds 22% of the global potash capacity and 55% of the excess global potash capacity. Essentially, they hold 75% of the world's potash reserves. As long as farmers need potassium supplements, POT is positioned to grow. Potash Corporation of Saskatchewan (POT) has exceeded earnings predictions 5 of the past 8 quarters. Major firms have upgraded the company in the last month, including Morgan Stanley and Citigroup.

We declined to rate POT as a strong buy for a few reasons. POT's P/E ratio is a bit higher than other similar companies in the sector. We believe that POT is currently overvalued versus the market. Waiting for a low somewhere below the 50 day moving average for this stock would be worthwhile.

In Play: Ultrashort Dow30 ProShares (DXD), the only stock I've recommended, is up over 11% since last Friday. The Dow itself is down almost 600 points. The time for profit taking is soon approaching, though.

Dollar Bill did not own any shares or short positions in any of the stocks he's mentioned at the time of publication.

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