PotashCorp (POT.TO)

Potash (POT-T) or Agrium (AGU-T)? Had really liked Agrium because of its diversification. Then he saw that they were going to merge with Potash. To him, the merger takes away a lot of the longer-term merits of Agrium, so he took profits. Not sure he would look at either one.

Potash is a really hard commodity to look at. It has a cartel type of mentality. Very dependent on foreign buying. There have been a lot of letdowns with this name. He would steer away from this right now.

Is the merger with Agrium going to be accretive? The fundamentals are poor for fertilizers, and he continues to be bearish on the sector. Potash is lucky to get them to take them over as the potash industry is facing big expansions, even though more potash is being sold globally.

(A Top Pick June 16/16. Up 11%.) He sold this as he expected potash prices to continue to fall because of overcapacity. Doesn’t expect the growth in potash prices that the company was expecting.

(A Top Pick, May 5/16. Up 11%.) Sold his holdings because he felt they weren’t executing well. Also, felt that potash prices had to come down a lot more because of the overcapacity.

They cut the dividend in the last year and a half. If you own a little bit, you hold it. Fertilizer is going to be tough. Close your eyes and just hold it. You will be fine. Buy it with write puts at $21.

Potash is an industrial material. You do not want to be invested in industrial material stocks when there is excess capacity. This has plagued the potash market for years. You have time before investing in this one. The dividend has been cut. Dividend yield of 2.3%.

Historically, fertilizer stocks have a period of seasonal strength from around October, through to the end of the year. He is not expecting to see much movement to the upside at this time of year. There has been some good news in the last couple of weeks, where it looks like European competition is becoming less competitive, which will be a positive for this company and fertilizer stocks in general. There are better opportunities elsewhere.

A cyclical company, and is at a cyclical low right now in terms of their ROC. You don’t buy a company when its ROC is at a low, unless you think it is at a bottom. According to his 20-year history, this is at the absolute lowest point. If so, it should be able to go higher, and using normalized returns, is actually worth a little bit more. Thinks you can get the low to mid $20s out of this. Dividend yield of 2.3%.

Not a bad company, it just that you have a market that is oversupplied. You have had supplier discipline going out the window over the last number of years. A good company and there will be a time when you want to have a good position in this, but now is not the time.

In the process of moving into Agrium (AGU-T). He was always relatively negative this company, but always very positive on Agrium. With the combination of the 2, you will end up owning both, which is okay. If this sold off, he would be stepping back in. It’s a good, long term growth sector.

He would consider this as either a Hold or a Sell. The underlying commodity price seems to have stabilized. The stock has dropped over the past couple of years. Profitability has been down. They’ve had a few disappointments. This is one you could own for the longer-term, but right now there is uncertainty as to where the commodity price is going to go.

This has not been his favourite for a long time. He has preferred Agrium (AGU-T). Nothing will be better for Potash than Agrium taking over. The merger is good for Potash shareholders.

Supply has not come off in the market. Capacity has to come off to get the commodity rolling. He is not looking at it, preferring the base metals. POT-T has low cost and infinite resources.

There is a lot of supply of potash. Demand is not very robust, so he is not very enthusiastic about the commodity. The merger with Agrium (AGU-T) will create a much bigger company, with a decent distribution arm. It will also give them nitrogen. Demand for most of the farm chemical input is not that strong.