PotashCorp (POT.TO)

(Market Call Minute) We still need a rise in potash prices. It remains a little on the expensive side even combined with AGU-T.

It is going to merge with Agrium. He wants to see the balance sheet before making a decision. There are cheaper stocks to buy. His model price is $25.72.

Agrium (AGU-T) & Potash (POT-T)? If you hold these already, they are probably good holds. He doesn’t own either. Had thought the outlook for fertilizer was going to be a little weak, so going into a weak cycle for a couple of years they’ll have a tough time. Had always liked the retail side on Agrium, but that is now going to be diluted. He would consider this a Hold from here.

This space has been pretty difficult for the last 3-4 years. Seasonally, it has a strong period that kicks in, in January. You want to see this hold its current line, but look to take profits by the end of January, when the seasonality ends. Then we get into the quite soft February-May period.

Agrium and Potash have gone through a pretty good basing period, and technically have broken out. You could probably own either one. He prefers Agrium, which gives a broader base. Ultimately, they are going to trade in line with each other. They have both pulled back recently, giving you an entry point. You don’t want to be overly focused in this group.

AGU-T vs. POT-T. If you want exposure to the AG space, there are other possibilities. These are commodity related stocks. AGU-T has more retail. They are trying to tie the knot. It looks like a good marriage, but AGU-T holders probably don’t need more commodity exposure. He prefers others.

This has had some ups and downs, but right now are somewhere around the bottom. There are some signs that things are improving, but there is a lot of overcapacity in the industry, and will take a while to work off. Longer-term, he believes they will come out of it. The next 12-18 months is difficult to see.

There has been a tremendous base occur over the last few months. The chart shows this is bumping up against its resistance right now, at about $24.50. It is slowly grinding higher and breaking the overhead hurdles. Following the prolonged period of range trading action, this could break higher. Upside potential is about $4-$5 from its $25 point. The period of seasonal strength for fertilizer stocks, particularly potash, is positive through December all the way through to about February. You could play the broad basket of fertilizer stocks through the ETF SOIL-T.

(Market Call Minute.) Avoid this. The company has been buying back stock, bloating its balance sheet, and ultimately it is a commodity seller. There is no shortage of potash in the world.

AGU-T vs. POT-T. How much are the stocks going to be worth after the merger? A lot of the value has been squeezed out of the play. POT-T is more of a deep value play. POT-T will give you a little bit better yield and is his preferred.

Merging with Agrium (AGU-T). If they can take the costs out like they say they will, this will be a better balanced company.

The merger with AGU-T is subject to regulatory approval. He would pick the timing to get in. He was hoping from the new company he would get a company with only the retail assets. POT-T will take longer to recover because of the supply levels. He will make a decision closer to the deal closing.

This has never been a favourite. It is a one product company. They have had various misses including mine floods. Combining with Agrium (AGU-T) makes more sense. He wouldn’t buy either right now until the dust settles on the merger.

They have been all in the news with the merger. POT-T is at an interesting point in its cycle. The price has fallen as part of the cartel breaking up in Europe. Capacity is coming off and this is the secret to knowing when to buy. Pricing will recover as supply comes off. Then they added AGN-T with its retail distribution and that is a plus for them. You have to look 2 to 3 years out. One of the problems is that they cut their dividend. He thinks the story will hold, but not be the sexiest story for the next little while.

At around $20, this is probably a no-brainer.