PotashCorp Isn’t Wilting Under Pressure

Photo credit: Flickr/Dodo-Bird

This past July the world of potash was thrown for a loop when one of the two big partnerships controlling the market collapsed. This is when Russia's Uralkali made the decision to pull out of a joint-venture with Belarus Potash Company and to sell through its own trading company while producing at 100% capacity and sending shockwaves through the industry. The move was seen as being so devastating to the potash industry that one analyst quipped that it marked, "the end of the potash world as we know it."

There is no doubt that the Uralkai decision is impacting the potash market. That's clearly seen in the resent results posted by PotashCorp (NYSE: POT  ) . Its earnings dropped 45% to $0.41 per share. Further, PotashCorp was forced to revise its full-year earnings estimate lower to a range of $2.00-$2.20 per share from its most recent forecast of $2.45-$2.70 per share.

However, according to CEO Bill Doyle the company's most recent quarter, "can best be characterized as a predictable response to an unpredicted event." He goes on to say that, "while this volatility does not change the long-term underlying fundamentals of fertilizer demand, it did significantly slow market activity and our ability to deliver the results we expected." Unfortunately, all too often investors see short-term problems altering the long-term fundamentals of a business when in most cases they do not.

What's worse is that our predictable response to an unpredictable short-term event is usually to panic. We hardly ever let the dust settle before reacting. Take again the example of the analyst predicting the end of potash. Now, three months later on PotashCorp's earnings conference call, that same analyst could be found asking questions about how much volume PotashCorp and Canpotex -- a partner with Agrium (NYSE: AGU  ) and Mosaic (NYSE: MOS  )  -- sold into India last quarter. Clearly, the world of potash hasn't ended as he thought it would, though it has been temporarily disrupted.

That's why it's important to look at things from a long-term perspective. Investors in PotashCorp own shares in that company because it has a large, low-cost operation that is diversified into the three nutrients that crops will continue to need in the decades ahead. To top it off the company has a solid balance sheet and pays a stellar dividend.

The same goes for investors in Mosaic. An investment in Mosaic is one more focused on potash and phosphate, because unlike PotashCorp it doesn't produce nitrogen. Meanwhile, an investment in Agrium is one made knowing it's heavily levered to its retail business. The bottom line here is that these are real businesses and not ticker symbols. So, while investors shouldn't expect a whole lot of good news when Agrium and Mosaic both report earnings on Nov. 5, those numbers won't be reason to sell.

Investors instead need to keep the big picture in mind. The long-term fundamentals of the fertilizer market are very solid because farmers have a real challenge to produce enough to feed everyone. Some estimates suggest that farmers need to produce more food over the next 50 years than they have over the past 10,000. Further, they'll need to do that on half the arable land per capita than in the 1970s. It's this thesis that matters, and one company's choice to pull out of a joint venture won't change it.

This is why PotashCorp isn't wilting under the short-term pressure of the current market dislocation. It's making investments for the long term to position itself to take advantage of this future demand. That's why investors need to take the long-term view and sit back and keep collecting it's rock-solid dividend while waiting for the current market storm to pass. 

Looking for more rock-solid dividend stocks like PotashCorp?

Dividend stocks like PotashCorp can make you rich. It's as simple as that. While they don't garner the notoriety of high-flying growth stocks, they're also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2699635, ~/Articles/ArticleHandler.aspx, 10/30/2014 11:13:26 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Apple's next smart device (warning, it may shock you

Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!


Advertisement