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PotashCorp Perfect For The Long Term
PotashCorp (NYSE: POT), the world's largest fertilizer company, reported $1.47 in earnings per share for the first quarter of 2010, a 46% lift from the brutal first quarter of 2009 and the second highest first-quarter profit figure in the company's history. To be fair, Potash was recovering from a 2009 year that saw fertilizer prices decline to multi-year lows. While fertilizer prices have rebounded nicely since 2009, it was the surge in fertilizer volume that aided earnings.
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A Hungry World
The long-term case for PotashCorp and other quality fertilizer names like Mosaic (NYSE: MOS), Agrium (NYSE: AGU) and CF Industries (NYSE: CF) is an incredibly attractive story supported by compelling fundamental factors. As the PotashCorp CEO points outs, fertilizer is the solution for solving the world's growing food problem. With a global population that is certain to be bigger over the next decade and beyond, feeding more people with fewer acres of arable land possesses a significant challenge. Not only that, but as standards of living continue to improve in nations like China and India, diets also include more protein. As more meat is desired, the amount of grain need to support such livestock demands rises significantly.
Leading the Way
Potash is not only the largest fertilizer company in the world, but also the lowest-cost producer when its comes to potash production. As one of the three major crop nutrients necessary for crop production, potash also commands the highest gross margins. For the quarter, potash sales generated $900 million of the company's $1.7 billion in revenues and gross profit of $516 million, a margin of over 55%. Phosphate sales were $401 million with gross profit of $66 million, while nitrogen sales of $420 million produced gross profit of $130 million. So while the strong economics of the fertilizer industry will benefit the entire sector, PotashCorp stands out with its operations weighted significantly on potash production.
Buy and Hold
While the past decade has made many skeptical of the buy-and-hold approach, the idea works incredibly well when fantastic wide-moat companies are bought at attractive prices. If PotashCorp can continue executing, it looks like a perfect holding for the long term. If wider exposure is preferred, the Market Vectors Agribusiness ETF (NYSE: MOO), which counts Potash as one of its biggest positions, fits the bill. (For more stock ideas, check out Safe Dividends In Oil And Gas.)
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IN PICTURES: How To Make Your First $1 Million
A Hungry World
The long-term case for PotashCorp and other quality fertilizer names like Mosaic (NYSE: MOS), Agrium (NYSE: AGU) and CF Industries (NYSE: CF) is an incredibly attractive story supported by compelling fundamental factors. As the PotashCorp CEO points outs, fertilizer is the solution for solving the world's growing food problem. With a global population that is certain to be bigger over the next decade and beyond, feeding more people with fewer acres of arable land possesses a significant challenge. Not only that, but as standards of living continue to improve in nations like China and India, diets also include more protein. As more meat is desired, the amount of grain need to support such livestock demands rises significantly.
Potash is not only the largest fertilizer company in the world, but also the lowest-cost producer when its comes to potash production. As one of the three major crop nutrients necessary for crop production, potash also commands the highest gross margins. For the quarter, potash sales generated $900 million of the company's $1.7 billion in revenues and gross profit of $516 million, a margin of over 55%. Phosphate sales were $401 million with gross profit of $66 million, while nitrogen sales of $420 million produced gross profit of $130 million. So while the strong economics of the fertilizer industry will benefit the entire sector, PotashCorp stands out with its operations weighted significantly on potash production.
Buy and Hold
While the past decade has made many skeptical of the buy-and-hold approach, the idea works incredibly well when fantastic wide-moat companies are bought at attractive prices. If PotashCorp can continue executing, it looks like a perfect holding for the long term. If wider exposure is preferred, the Market Vectors Agribusiness ETF (NYSE: MOO), which counts Potash as one of its biggest positions, fits the bill. (For more stock ideas, check out Safe Dividends In Oil And Gas.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Sham Gad
Sham Gad is the Managing Partner of Gad Partners Fund's, value inspired investment partnerships modeled after the Buffett Partnerships of the 1950's. Previously, Gad ran the Gad Investment Group and delivered annualized returns of 22% from 2002 to 2005. Gad is also the author of "The Business of Value Investing" which will be out in the fall of 2009. Gad earned his MBA at the University of Georgia in May of 2007. Gad runs a value investing blog. He can also be reached by visiting the Gad Partners Funds site. When not writing or analyzing businesses, Gad enjoys hanging out with his wife Maggie, reading, golf, and yoga
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