Why Potash Corp. Shares Will Pull Back

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

Brian D. Pacampara, CFA
Brian D. Pacampara, CFA
Jul 9, 2014 at 3:14PM
Energy, Materials, and Utilities

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.