Will Potash Corp. (POT) Ever Outperform?

Potash Corporation StockIn August of 2010 I made a very bold CAPScall on Potash Corp./Saskatchewan (USA) (NYSE:POT). The call came right after the fertilizer giant had received a hostile takeover bid from BHP Billiton Limited (ADR) (NYSE:BHP). That original bid was for a split adjusted $43.33 a share, which I thought was too low.

In that original CAPScall I boldly proclaimed: “I think BHP offers more and gets the deal done. Probably around $180/sh (Author’s note: Split adjusted that’s $60 a share). You can even look at a pairs trade and short BHP through the deal.” In the end, the Canadian government actually blocked the deal, and I was left with a busted thesis.

Oddly enough, PotashCorp hit that price target, but instead of claiming victory, I doubled down on my outperform call. Over that time, the S&P 500 is up about 37% while PotashCorp is down 9%. Is it time to give up on my bullish bet?

On the contrary, I think that now would be the worst time bail. Much of PotashCorp’s recent struggles have been due to weakness in both China and India. Farmers in those two markets have been delaying new contracts. Chinese contract negotiations wrapped up in January, but India has yet to finalize any deals. It, too, is likely to come around as food costs are climbing rapidly in India, and fertilizer is one of the cheaper methods of boosting crop yield. Continued population growth and below-average crop yield virtually assure India’s need to increase potash usage.

Not only that, but bullish signs abound in the North American and Latin American agriculture markets. Monsanto Company (NYSE:MON) reported excellent results last quarter with growth coming especially from Latin America. That’s on top of a similar report from Mosaic Co (NYSE:MOS) which saw its 18% growth in Latin America. Monsanto also saw strength in the U.S. as the company was able to pass on price increases to farmers.

Unfortunately for PotashCorp investors, until India turns, the company’s near-term performance could continue to be muted. It’s said just as much when it announced reduced earnings for its upcoming full-year report. However, over the longer term, the outlook is much brighter.

That outlook is simple really: Increased population across the globe, when combined with less arable land, means farmers will need to use more fertilizer to feed everyone. PotashCorp is the low-cost producer, meaning that more of its future sales will fall to the bottom line. At some point we’ll hit that tipping point, and when we do, PotashCorp investors will reap the harvest.

The article Will PotashCorp Ever Outperform? originally appeared on Fool.com and is written by Matt DiLallo.

Fool contributor Matt DiLallo owns shares of BHP Billiton Limited (ADR) and has the following options: Long Jan 2015 $70 Calls on Monsanto Company, Short Jan 2015 $70 Puts on Monsanto Company, and Short Jul 2013 $95 Calls on Monsanto Company. The Motley Fool has no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Burger Kings: The 10 Most Expensive Burgers in the World

The 10 Most Ethnically Diverse Countries in the World

The 10 Most Exclusive Credit Cards in the World

The 10 Most Expensive Cruise Ships in the World

The 10 Fastest Supercomputers in the World

The 10 Best Countries for Doing Business 2015

6 Most Expensive Fruits In The World

10 Worst Airlines in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!