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Potash: No Miracle Gro for your Portfolio

Today's Financial News - Posted March 5, 2009

Potash Corp./Saskatchewan (NYSE:POT) is being touted as ready for a breakout. We beg to disagree!

by J. Christoph Amberger

Baltimore—TFN: These days, you may argue that any equity investing is automatically contrarian investing. Worse, that buying stocks is an irrational gamble that reason will prevail and the political superstitions of the 19th and 20th centuries will be fumigated for good.

But as Washington is buffing the tarnished bronze calf of socialism back to life, some of my colleagues are rooting for a Lazarus Smile from commodities—happily oblivious that the engine that drove the commodities boom, American consumer buying—is now being relegated to a bilge-pump servicing household debt and the long-prayed-for savings.

Take potash.

One of my colleagues wrote: “The basic idea is simple: The demand for food is rising, and hence so is the demand for fertilizer, which is essential to crop production. As farmers work with ever-decreasing amounts of good arable land, the need to boost crop yields is paramount. Fertilizers are a key part of doing just that.”

Now take a gander at Potash Corp./Saskatchewan (NYSE:POT).

A year ago, during the heady days of the Commodities Super Cycle, POT shares went for over $240 a pop. The reasoning was simple: China was growing, the Chinese were getting richer, and the rich Chinese were going to make up for the term “Asiatic famine” once and for all by eating all the hogs, cows and dingdongs they could lay their chopsticks on. So farmers needed fertilizers and Potash is just another word for fertilizers-’r'-us.

“Potash is exactly the kind of stock you should be buying now,” my colleague says. “There is a lot of short-term fear of the credit crisis. But the long-term story that underpins this investment is rock solid. And the company itself owns best-in-class assets.”

Now hang on a minute. Don’t bother looking at red wheat and corn prices. (You won’t miss much!) Look at the stock!

Now, let’s look at the long term in reverse. POT’s share price two years ago, on March 9, 2007, was $53.22—meaning the stock price could reasonably fall by another 15-20% merely to erase 24-month gains. If you go back 3 years, you’ll see that this is really a $25 stock… in a bull market!

We’re all for learning from history. But for crying out loud, there’s no way the Chinese could possibly eat enough to substitute 2008 hype with genuine demand! If you want to look at history… look a bit further.

And for the time being, stay out of potash.


Next Article: It’s official: Stimulus is worse than 9/11… as far as the Dow is concerned

Posted by J. Christoph Amberger · Filed Under Editor's Pic, Gold and Resources 

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4 Responses to “Potash: No Miracle Gro for your Portfolio”

  • torontondn Says:
    March 5th, 2009 at 5:03 pm

    I will wait till then POT come to 50….But do only Chinese EAT?

  • J. Christoph Amberger Says:
    March 5th, 2009 at 5:22 pm

    Not any more. Everyone else is on a diet!

  • Reaktor Says:
    March 5th, 2009 at 9:41 pm

    I’m a little more optimistic with Potash and will continue to buy in a bi weekly pattern, looking for bargains as I go. With great fundamentals, decent financials and many months of continued growth, I’m in for the long haul. I’m considering this one a “do over”, but this time I’m getting in near the bottom. Some smaller farm operations may fore go their fertilizer regiment this growing season due to the “sky is falling syndrome” but in the end they will be back to replenish the fields.

  • Cynthia Says:
    March 9th, 2009 at 5:08 pm

    I personally know of many people who are planning to grow their own gardens due to the serious economic conditions, as well as myself. I swear by Miracle-Gro!
    Cynthia

Your comments are welcome