Potash Corp./Saskatchewan (USA) (POT), Mosaic Co (MOS), Intrepid Potash, Inc. (IPI): As Potash Prices Plummet, Should You Avoid These Stocks?

Mosaic Co (NYSE:MOS)’s fiscal 2013 is in the books, with diluted EPS staying flat year over year. Net sales came in at $10 billion, down 10% from the $11.1 billion earned the year before. Gross margin fell three percentage points in the fourth quarter, leaving investors to wonder what kind of further margin erosion is in store since wholesale potash prices keep falling.

At the same time, Intrepid Potash, Inc. (NYSE:IPI) recently concluded its own fiscal second quarter, which saw adjusted EPS drop by nearly a third versus the same period the year prior. The main culprits were, not surprisingly, lower potash prices. Intrepid Potash, Inc. (NYSE:IPI) booked an average sales price of $443 per metric tonne during the quarter, versus $512 per metric tonne the same quarter one year ago.

The Foolish takeaway
These stocks certainly are cheap based on trailing results, exchanging hands for between 9 and 11 times EPS, but investors now need to make a guessing game out of how the collapse in potash prices will affect the underlying fundamentals of each of these companies.

Sales and profits will undoubtedly be adversely affected by the drop in potash prices, but at the same time, it appears the damage is largely reflected in their respective stock prices. In particular, as the largest industry competitor and more resilient performance in recent periods, Potash Corp./Saskatchewan (USA) (NYSE:POT) seems best equipped to overcome the current industry headwinds.

Moreover, Potash Corp./Saskatchewan (USA) (NYSE:POT) investors have some definite positives to hang their hats on until the global potash industry gets back on solid footing. Specifically, the company’s strong $2 billion share buyback program and hefty 4.7% dividend yield represent meaningful margins of safety. Investors will, at the very least, be paid handsomely to wait for more favorable business conditions, and the long-term buy case remains strong.

The article As Potash Prices Plummet, Should You Avoid These Stocks? originally appeared on Fool.com and is written by Robert Ciura.

Robert Ciura has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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