Saskatchewan Potash Corporation (NYSE:POT) is not quite cheap enough to re-enter

Posted August 4, 2008

After booking 50% gains on Saskatchewan Potash Corporation (NYSE:POT), we’re not quite ready to re-enter this stock, even at current financials.

by J. Christoph Amberger

Baltimore — (TFN): On December 26, 2007, former BreakAway Investor editor and resources expert Andrew Mickey was our guest expert at Hot Stock Pick of the Week. We usually post the transcript the day afterwards, in this case on December 27, 2007. His report was titled “Commodity Investing: Profit from the global boom in agriculture” and he recommended Saskatchewan Potash Corporation (NYSE:POT). POT traded for $143.41 on Dec. 26. We last updated you on this stock on May 6.

At this date, we considered a 50% gain over our initial recommendation of POT an acceptable medium-term return-on-investment: “It may take a few weeks, but be ready to take profits at or near $215 a share.”

On June 5, the stock closed at $218.85 and rose to a 52-week high of $239.50 on June 18. We recorded the June 18 closing price as our exit point.

Since then, POT’s share price has followed a jagged trend downward, culminating in a steep 10% drop to $180 today. Nothing obvious seems to be wrong with the company. Gross margins and earnings tripled to 68% and $905 million over last year. Prices of potash, phosphate and nitrogen increased more than 160%, 130% and 55% over the past 12 months. POT raised its earnings outlook by about 30% for the year.

Given the overall drop in commodities prices over the past week, the mostly mild summer, and the slight improvement of the exchange rate for the U.S. dollar, we expect further pullbacks by the speculative money — out of commodities.

We’ll be keeping POT on our shopping list and re-enter the position at a better price.

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