Potash Corp.: So bad, it’s good
The Globe and Mail
Published Thursday, Oct. 24 2013, 3:11 PM EDT
Last updated Thursday, Oct. 24 2013, 3:13 PM EDT
The news around Potash Corp. of Saskatchewan Inc. is so grim that the stock is looking more and more like a gift to long-term investors.
Of course, things haven’t been going well for Potash Corp. recently. The stock took a terrible tumble in July, when Russia’s Uralkali OAO walked away from an export partnership, preferring to go big on volume rather than try to prop up prices within a cartel. The move scared investors off Potash Corp., which operates within a marketing group of its own (Canpotex).
As well, BHP Billiton is working on expanding its reach into the potash market, ploughing money into its Jansen mine in Saskatchewan, promising to add to the global supply of fertilizer and aligning itself as a key competitor to Potash Corp.
And now, Potash Corp. has released its third-quarter results, with an updated outlook – and neither alleviates any of the concerns among investors. Earnings fell to $356-million, down from $645-million last year, and sales fell 29 per cent. The company cut its full-year earnings per share forecast to a range between $2 and $2.20, which is below analyst estimates and marks its least profitable year since 2010, according to Reuters.
The share price reflects this onslaught of disappointments: The shares were down 2.7 per cent in Toronto on Thursday afternoon. They have fallen 28 per cent since May, and they are down nearly 50 per cent from their record high in 2011, when Potash Corp. was a takeover target of BHP Billiton.
But potash has always been a longer-term investment, playing into the fact that the global population is rising and people are growing more affluent – requiring efficient ways to feed them all. Potash is a big part of the solution, since fertilizer increases crop yields.
The bad news that has gripped Potash Corp.’s share price doesn’t include revisions to this thesis, suggesting that the company is still going to be playing a key role in the decades to come. If you held off the temptation to buy this stock when everything was going right, it sounds like the right time to embrace the stock now that everything is going wrong.