Update Potash of Saskatchewan (POT)
Investors get gun shy. Make every attempt to buy into a market correction a big loser and most investors won’t put a dollar in even when there’s concrete evidence of a turnaround.
Companies do too. After seeing every projection for the price of potash fertilizer and for the company’s earnings turn out to be laughably high for the last year, management at Potash of Saskatchewan (POT) has finally come out with guidance that strikes me as laughably low.
On January 28, the company announced fourth quarter earnings of 80 cents a share. That was 2 cents a share above the Wall Street consensus but a huge drop from the $2.03 a share in the fourth quarter of 2008.
And then the company dropped its bomb.
In the first quarter the company will earn just 70 cents to $1 versus Wall Street’s expectations for $1.10 a share. For all of 2010, earnings will total $4 to $5 instead of the $5.89 that analysts now project.
The numbers don’t make a whole lot of sense except as a reaction by the company to seeing its guidance get smashed to the downside in quarter after quarter. For example, Potash announced that it sold more potash in North America in the first three weeks of 2010 than it had in the first eight months of 2009. Working backwards Potash is projecting potash prices of just $365 a metric ton well into 2011, RBC Capital calculates. That’s not much of a step up from the $336 a ton realized in the fourth quarter, even though demand has picked up and the company believes that prices will climb in 2010 from the $350 benchmark set in recent contracts.
As of February 1 I’m keeping my target price at $130 a share but stretching out the schedule to July 2010 from March 2010.
Full disclosure: I own shares of Potash of Saskatchewan in my personal portfolio.
Jim,
Do you see a strong point to add more shares here? I have raised a bit of cash and POT is definitely on my list to add as I think it has excellent risk/reward prospects. I’m looking at around 90-95 as I think we have a bit of downside in the next few months before we continue the next leg up.
As I posted in the comment section for the last POT update, I just don’t see a big price increase for Potash in the near future. Remember that most farmers would already be placing orders for the spring planting season, so I don’t see Potash fetching much higher prices unless speculators get involved. If POT gets to Jim’s price target, I would sell immediately (many traders are willing to pay a much higher P/E ratio since the trailing earnings will make the company look very attractive).
Jim:
Would update on GLF? I believe many people would like to know your recent view on the co.
POT has gone pot. Simple as that. All my careful planning goes awry with this one. Though haven’t lost much, but this one can surely surprise either way. When I tell my cousin to buy POT – he sells and buys when I sell and he is beating me at this one for last 4 months.
Anyway, think of MOO instead of risking your shirt on this one – unless you are very quick in getting in and out.
Recent guidance from Intrepid Potash was 145,000 -155,000 tons in Q409 (vs. 94,000 in Q408, and 215,000 in Q407). It looks like things are getting better in the potash department there (Trio sales looked low).
I’ve made a lot of money on POT (thanks for that, Jim). My secret, buy when it goes down a lot and sell when it goes up a lot.
I know that sounds crazy… but POT is on pot… it just goes up 5% in a row for several days for no apparent reason… then repeats in reverse.
My only regret: raising my target price to Jim’s and not selling out at 126… but, be patient. She’ll get hot again. She always does.
Does anyone else buy Jubak’s picks when they are like -10% or more since he bought? For me, it’s a great way to identify a great stock at a great price.
Right on ponymagic. Jim can identify the trends and stocks very well but sometimes when he recommends them they are on a tear and it is difficult not to be buying them at a top. With some patience they can usually but not always be had at a much lower price. This is useful if you can play the oscillations of a sideways moving market as you describe you have done. It also helps reduce your potential losses if you are long and a correction like the current one comes along.
I’d definitely recommend trying to better my buying price. This portfolio has a one-time buy/sell practice. I don’t buy or sell partial postions–just all at once one way of the other. You should be able to trade around my buy/sell prices and do better very often. No reason to automatically buy and sell when I do.
Congrats, Jim. Another upgrade today. I bought some all last week as it went down, this is the third time around for trading in and out of Potash in this range. Advice for Grindy, if you wait for the perfect buy point you’ll never make money.