PotashCorp (POT.TO)

There was a time when POT-T had cornered Potash. Now there is competition. Crop prices are low right now. In the most recent quarter they missed on their numbers. They are just making a new low. It is in the commodity space and we have entered a time when there is more supply than demand. Don’t buy for the dividend and lose more than the dividend amount in stock price.

Prefers Agrium (AGU-T) where you get nitrogen as well as the potash side. It also has the retail side. This is not particularly cheap and the outlook for Agrium is better. 4.8% dividend yield is safe.

This has very strong seasonality. Its best time is from October until early January. This can show positive signs even earlier than October. Historically it tends to bottom right around June-July, and starts to perform during that time, but doesn’t make you any money. Technically it is finally starting to show signs of bottoming, which is very encouraging. Still too early and he would encourage you to wait until October, but on occasion this can start to show its upward trend as early as the end of June.

It has pulled back. Price momentum is in the bottom quartile. Valuation is middle of the road. It has good return on equity, but it is expensive at 18 times PE. They missed on their last quarter. This may become a go-to name for investors as we move into an inflation trade in the markets.

The agro-cycle is in a bit of a lull right now, partly because the harvest has been so good that prices have been depressed. Thinks the market share battle for fertilizers will continue for a while. Getting close to a 5% yield, which is a rarity in today’s market. Doesn’t expect a lot of upside in the next couple of years, but with a 5% dividend yield it may be something to hold.

Potash turns on pricing in China and India, and he thinks the stock is off because the contracts weren’t priced where the market was hoping. It’s a complicated equation. There have been some new producers who have entered. Not a bad entry point if you want to get in for the long haul.

It is a counter cyclical play. Commodities are priced in US$. This is a company that was way higher in 2008/9 when people were fired up about global food production. Now the dividend is 10 times as high. If you have a sustainably increasing dividend then the share price will follow along.

It is facing some headwinds. Get some cash from it and reallocate it. There will be headwinds in this sector because of crop successes recently. The farmers need the cash in their pockets to invest heavily in fertilizer.

At current prices this could be a good long-term investment. They have had a fairly good turn of events lately. Their last quarter had a bit of a beat and they increased their dividend at that point. It is a little bit murky over the next year as they expect global demand is probably going to be a little bit less then last year. Thinks earnings in the next couple of years should get over the $2 level. Also, feels the dividend is secure. He prefers Agrium (AGU-T) as it is a little more diversified.

His preference would be Agrium (AGU-T). Potash is difficult. One quarter things look better, as they do now. Shipments are up and probably for the next year or 2 you are going to have a reasonably stable potash market. However, looking out 2-5 years, there is such a big quantity of new supply coming on; people are wondering if the price can be maintained. One of the great hopes for potash is that people who have been under utilizing it and fertilize in their fields, will go back to do what is right in terms of fertilization. China in particular is pushing farmers to get their standards up to North American standards. (See Top Picks.)

Seasonality for fertilizer stocks runs from June all the way through to September, and tends to do quite well. You want to play this more through the summer period or October through to the end of the year. Last summer was a bit of a bust, particularly for this company. You want to enter more towards the last half of the year rather than the present.

This falls into the category of a very highly cyclical dependent on what is happening globally. For a long, long term, it is an important part of agriculture in our economy. He is not interested in this right now.

The tax changes were not that meaningful for them. It will not hurt the dividend. He is out of the name because of lack of demand and more supply coming on. Prefers AGU-T but is not in that right now either.

This stock has a bit of a lid on it at around $48. To him, this is a trading stock. He would look for a possibility of a little bit more downside, and then look for a bounce where you could trade.

Agrium (AGU-T) or Potash (POT-T)? Some of the fertilizer names are doing very well because of lower energy. Both names are quite strong, but Agrium ranks a little bit higher due to its growth metrics and its diversified mix. Dividend of 3.91%.