Why PotashCorp is Poised to Bounce Back

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of PotashCorp   (NYSE: POT  ) gained about 1% today after TD Securities upgraded the fertilizer giant from hold to buy.

So what: Along with the upgrade, analyst Greg Barnes boosted his price target to $37 (from $33), representing about 18% worth of upside to yesterday's close. While momentum traders might be turned off by the stock's weakness over the past several months, Barnes thinks PotashCorp is too cheap to pass up given his view of stabilizing potash prices and accelerating demand in 2014.

Now what: According to TD, PotashCorp's risk/reward trade-off is pretty tempting at this point. "We believe that although 2014 potash sales guidance was disappointing versus most expectations (including ours), the recent upward swing in global spot potash prices, the fact that Chinese buyers have concluded H1/14 delivery contracts, and that the global potash market is expected to report reasonable y/y growth this year (+3.7%) suggest that the market is stabilizing and that as buyers adjust to the new market reality, demand should accelerate," noted Barnes. More important, with the stock off about 30% from its 52-week highs and trading at a forward P/E in the low-teens, the downside seems protected enough to buy into that optimism. 

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