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Tickers in this Article: POT, MOS, AGU, CF, IPI
Fertilizer stocks, including the fortunes of giant fertilizer producer Potash Corporation of Saskatchewan, Inc. (NYSE:POT), were turned into dust in the wind when the commodity bubble burst. The esoteric company's stock was riding high at $241 per share last year, before crashing to a low of just under $48 a share. Now, it has slowly clawed its way back to cross over the $80-per-share mark on the plus side. Investors want to know if the stock is worth buying again.

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Earnings Bonanza
In 2007, POT's revenue was $5.234 billion, with a net income of $1.1 billion. In 2008, its revenue was $9.45 billion, with a net income of $3.495 billion. No wonder the stock shot up to over $240 per share. The quiet juggernaut of a company was showing increasing earnings at a healthy clip previously. This dramatic increase showed the effects of both booming demand and booming commodity prices.

POT was not alone. Other fertilizer companies, such as Mosaic (NYSE:MOS), showed similar explosions in revenue and even more in earnings. Agrium (NYSE:AGU) doubled revenues and tripled its earnings, while CF Industries Holdings (NYSE:CF) wasn't quite as dramatic with a nearly 50% increase in revenue with a 40% increase in income. Fellow potash producer Intrepid Potash (NYSE:IPI) had roughly a 50% increase in revenue with a fivefold income increase. This shows that, although the stocks took off something like the Dutch Tulip Mania, there was something fundamental beneath their rocket-like rise from the launching pad: huge earnings increases. (Read all about the biggest burst bubbles in our Market Crashes Feature.)

What a Difference a Year can Make
The earnings trajectory from 2007 through part of 2008 did not carry through with the fertilizer producers, as the quarterly earnings of POT and the others have already shown. In the fourth quarter of 2008, POT's revenue was already scaled down to $1.87 billion and its net income $790 million, where in the third quarter the revenue had been over $3 billion and the income over $1.2 billion. Estimates for the first quarter of 2009 put earnings per share at 86 cents by analysts' consensus, according to FactSet CallStreet, where the first quarter of 2008 actual earnings were $1.41 a share. These are still actually healthy earnings numbers, but with the boom times over and the speculators out, the air was let out of the Potash stock as well as the other fertilizer stocks.

A Glum Picture?
Mosaic's third-quarter earnings, which came out in February, showed a loss in the phosphate segment of the business, a dramatic change of fortunes in the industry. Demand in both the industrialized world and the developing world has shrunk dramatically. Earnings estimates for CF Industries by analysts suggest a consensus of 79 cents EPS for the quarter ending in March, as against $2.04 for the previous year's comparable quarter, which was also a major fall off. As for Intrepid, analysts are predicting 24 cents versus 31 cents EPS a year ago, and have forecast a similar outlook for Agrium. While Intrepid and Agrium are closer to holding the line, the year of doubling annual revenue has come and gone. (Put a little green in your wallet by investing in these growing areas Top 10 Green Industries.)

Prospects For Potash
Investors recently weighed in on the advantages and disadvantages of buying POT stock. Oversupply, price pressure on potash and weak farmer sentiment (demand) were cited as reasons not to buy POT stock, while the company's ample cash, competitive advantage and the potential for rebound in demand in potash were cited as reasons to buy.

The Bottom Line
It seems clear that the reasons not to buy are fairly short-term factors. Even the second half of this year shows potential for rebound in demand, and two-to-five years out, the continuing heavy need for potash will win out. Meanwhile, POT's business, with its $3 billion in cash flow, is still good, though not blockbuster. Earnings and projected earnings are tremendous fundamental building blocks for the long-term value of the stock. POT is a leading stock in the sector and should continue to prosper. (Interested to learn more, see What Is A Cash Flow Statement?)

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