Why Potash Corp. Shares Will Pull 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 analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Potash Corp./Saskatchewan (NYSE: POT  ) sank 2% today after JPMorgan downgraded the fertilizer giant from overweight to neutral.

So what: Along with the downgrade, analyst Jeffrey Zekauskas reiterated his price target of $38, representing just 3% worth of upside to yesterday's close. So while momentum traders might be attracted to PotashCorp's year-to-date price strength, Zekauskas' call could reflect a sense on Wall Street that the risks surrounding its growth trajectory are being somewhat overlooked.

Now what: According to JPMorgan, rival Mosaic (NYSE: MOS  ) offers better value than PotashCorp at this point. "Nutrient fundamentals are healthy, particularly in the granular potash end markets in the U.S. and Brazil; however, falling crop prices in anticipation of record domestic corn and soybean supplies could weigh on the share price of Potash Corp and the fertilizer companies," said Zekauskas. "At this juncture, we prefer the risk/reward characteristics of MOS shares given a lower valuation." Of course, with PotashCorp shares still off about 10% from their 52-week highs and boasting a 3.5%-plus dividend yield, those short-term concerns might be providing patient Fools with another long-term entry point. 

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  • Report this Comment On July 09, 2014, at 4:22 PM, gkarver wrote:

    Interesting that the downgrade comes on the ex-dividend date. Dividends were locked in yesterday and a new buying opportunity becomes available today and in the short term.

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Brian Pacampara

I take a look at big 10% moves, as well as stock-shaking analyst calls, on a daily basis for The Fool. While I don't believe in active trading, closely monitoring Mr. Market's mood swings can help identify long-term opportunities.

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Related Tickers

9/2/2015 12:51 PM
MOS $39.36 Up +0.15 +0.38%
The Mosaic Company CAPS Rating: ****
POT $25.53 Up +0.11 +0.42%
PotashCorp CAPS Rating: ****