Why PotashCorp Shares are Poised to Pull Back

Does this analyst make a good case? Or is it just more noise from Wall Street?

May 21, 2014 at 5:52PM

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 Potash Corp (NYSE:POT) slipped 1% today after Raymond James downgraded the fertilizer giant from outperform to market perform.

So what: Along with the downgrade, analyst Steve Hanson maintained his price target of $38.50 on the stock, representing just 3% worth of upside to yesterday's close. So while momentum traders might be attracted to PotashCorp's price strength over the past six months, Hanson's call could reflect a sense on Wall Street that the company's much-improved outlook is now fully baked into the valuation.

Now what: Raymond James will now move to the sidelines until the macro picture clears up and/or a more attractive entry point becomes available. "While recent industry data continue to support our view that global potash fundamentals remain on the mend," said Hanson, "we believe that recent share price gains, coupled with a commensurate expansion of the firm's underlying trading multiple, have together reduced the risk-reward proposition available to investors." With PotashCorp shares still off about 15% from their 52-week high and sporting a 3.5%-plus dividend yield, however, I wouldn't be so quick to take too much off table. 

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Brian Pacampara has no position in any stocks mentioned. The Motley Fool owns shares of PotashCorp. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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