Don’t Miss the Strength Behind Potash Corp. (POT): Bunge Limited (BG), Archer Daniels Midland Company (ADM)

Archer Daniels Midland Company (NYSE:ADM) focuses on oilseeds processing, corn processing, and general agricultural services. The firm has a total debt to equity ratio of 0.58 and is eying the Australian grain company, GrainCorp Ltd. After GrainCorp rejected an earlier bid, Archer went in and bought 5% more of the firm. Given Australia’s close proximity to the important Asian markets, Archer would greatly benefit from a greater footprint in the region.

The Case for PotashCorp

PotashCorp has a very low total debt to equity ratio of 0.42, Their ROI of 18.0% and ROA of 13.2% are healthy. This company is very different from global commodity traders and processors, so comparisons between these firms can only be made quiet loosely. PotashCorp’s status as a low-cost producer is seen in its gross margin of 52.2% and a profit margin of 26.2%. 2012 numbers came in a bit low, with negotiations for international sales still ongoing along with lower volumes. The firm’s stock price didn’t respond well to this news, but it doesn’t change the positive long term fundamentals of the firm. It sells potash, phosphate, and nitrogen to support a growing world and a growing middle class.

Conclusion

Bunge and Archer Daniels Midland are not poor companies — but I believe that PotashCrop is a better long-term investment, given the stability of selling fertilizer in the middle of an increasingly politicized global food market. The fact that PotashCorp is a low cost producer and based in the politically stable nation of Canada are further pluses that only add to its attractiveness.

The article Don’t Miss the Strength Behind PotashCorp originally appeared on Fool.com and is written by Joshua Bondy.

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