Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Potash Undervalued Opportunity Ripe for Long-Term Investing

Companies / Potash Dec 02, 2013 - 11:03 AM GMT

By: InvestmentContrarian

Companies

Sasha Cekerevac writes: As my long-time readers know, contrarian investing is all about buying when others are selling and selling when others are buying. Getting in ahead of the crowd is the key to successful long-term investing.

One market segment that has been severely hit over the past few months and could be ripe for long-term investing is the international potash market. Two firms operating out of Russia and Belarus essentially control approximately 40% of the potash market through a cartel that dictates supply and, ultimately, pricing.


In July of this year, this cartel collapsed, with one of the firms changing their strategy to maximize volume. This caused potash prices to drop by approximately 33%.

I believe there is a long-term investing opportunity in the international potash market. The current squabble between these two firms really is a soap opera, involving egos and politics centered between former Soviet Union nations.

For long-term investing purposes, one has to envision what’s likely to occur over the next few years. I don’t believe that management and the political leaders of both Russia and Belarus want to see potash prices at such low levels when they are able to reduce supply and raise prices.

This creates an investment opportunity for domestic potash producers.

While the overall stock market has soared, potash companies have seen their share prices drop significantly. For long-term investing purposes, I believe this is creating an attractive investment opportunity.

When it comes to long-term investing in a sector that’s beaten up, I would suggest looking at the market leaders, since they have the cash on hand to weather the storm.

Potash Corporation of Saskatchewan Inc. (NYSE/POT, TSX/POT) is one of the top potash firms in the world. With a market capitalization of $27.0 billion, a forward dividend yield of approximately 4.5%, and a return on equity of over 20%, even with the collapse in potash prices, this company is certainly one worth considering for long-term investing.

But remember, an unloved sector can remain out of favor for some time. The investment opportunity might certainly be valid, but this is the type of situation where investors need to slowly enter a market sector over a long period of time.


Chart courtesy of www.StockCharts.com

As you can see in the chart above, the collapse of the cartel in July 2013 caused a massive sell-off in the stock. With the stock now trading near lows not seen since 2010, the stock might soon be a candidate for long-term investing. Obviously, there are still several structural issues that need to be fixed.

While the investment opportunity is definitely present in the potash sector, one simply can’t put all their eggs in one basket. Long-term investing when there are so many unknowns can be risky; one needs to exercise caution by having a diversified portfolio, even within a given sector.

When will the Russian/Belarus potash cartel be formed once again? Who knows, as politics and business are extremely difficult to predict. In my opinion, it just makes business sense to have the price of potash increase, benefiting both nations and all companies in this sector.

Fundamentally, the demand for food, in my opinion, won’t decline anytime soon. Last time I checked, the population continues to grow, and this means more mouths to feed. The investment opportunity in food is pretty clear. More demand means a greater yield per acre is needed, which is why farmers use fertilizers in the first place.

Long-term investing in the potash sector is attractive from several different viewpoints. The cheaper valuations for potash companies, the investment opportunity from increased demand from food, and the cartel being renewed by two of the largest producers in the world are all positive catalysts.

This is not a short-term trade, which means it could take some time for this investment opportunity to work itself out. However, in my opinion, long-term investing in the potash sector is beginning to look more attractive. I would certainly have these stocks on my watch list for further consideration and due diligence.

This article Undervalued Opportunity Ripe for Long-Term Investing was originally published at Investment Contrarians

By Sasha Cekerevac, BA
www.investmentcontrarians.com

Investment Contrarians is our daily financial e-letter dedicated to helping investors make money by going against the “herd mentality.”

About Author: Sasha Cekerevac, BA Economics with Finance specialization, is a Senior Editor at Lombardi Financial. He worked for CIBC World Markets for several years before moving to a top hedge fund, with assets under management of over $1.0 billion. He has comprehensive knowledge of institutional money flow; how the big funds analyze and execute their trades in the market. With a thorough understanding of both fundamental and technical subjects, Sasha offers a roadmap into how the markets really function and what to look for as an investor. His newsletters provide an experienced perspective on what the big funds are planning and how you can profit from it. He is the editor of several of Lombardi’s popular financial newsletters, including Payload Stocks and Pump & Dump Alert. See Sasha Cekerevac Article Archives

Copyright © 2013 Investment Contrarians - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Investment Contrarians Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in