Time to Buy Potash?

Potash Corporation (NYSE: POT) shares are down nearly 50 percent from their 52-week highs as worker strikes, supply shortages, and a lower dollar hammered the fertilizer company. However, potash prices continue to rise, the sector continues to grow strongly, and the Potash Corporation is trading at just 23x earnings with a forward PE of just 7x earnings. So, when should investors take another look at this beaten-down company?

Fundamentally, the prices of Potash's primary product, potash, continues to rise. Potash has risen to $763 a tonne in July from $525 in June, according to Globe and Mail. Meanwhile, Potash's secondary product, ammonia, could also experience a boost from China, which raised its export tax on the commodity to 150%. This should help boost nitrogen fertilizer prices even more around the world. In fact, Potash is trading at just above 10x its lowest analyst earnings estimate for 2009.

So, why has Potash's stock fallen so sharply in recent months? Many analysts fear that rising sulfur prices may put a strain on margins while the mining strikes may lower output for the firm and reduce revenues. Obviously, a reduction in both top and bottom line growth is a large negative on the stock. However, strikes can be resolved and potash prices continue to outpace sulfur prices, which means that the company may not be in all that much trouble.

Investors that believe the slide in crop prices will subside may want to take a look at Potash when it is able to clear up its labor disputes. Many experts like Jim Cramer believe that Potash could be a buy when it hits the $140 level. Regardless, until the pictures begins to clear up for Potash or the agricultural markets, it is likely that the stock will continue its decent. However, the time to buy may be approaching soon.

Potash Corporation is an integrated fertilizer and related industrial and feed products company. The company's potash is produced from six mines in Saskatchewan and one mine in New Brunswick. Of these mines, it owns and operates five in Saskatchewan and the one in New Brunswick. Its nitrogren operations involve the production of nitrogen fertilizers and nitrogen feed and industrial products, including ammonia, urea, nitrogen solutions, ammonium nitrate and nitric acid.

 

Shares of Potash are trading down $6.29, or 4.05%, at $149.17 on the day.