New hopes for Potash

Fertilizer stock gets beaten up on Wall Street after rumors of trouble in China.

By Jim J. Jubak Dec 21, 2009 3:50PM

Jim JubakI don't remember putting “volatility” on my Christmas list, but Santa has sure delivered a big box of the ups and downs to shareholders of Potash of Saskatchewan (POT).


In the last two weeks, the stock was hammered on rumors that potash spot prices in China would stay stuck below $350 a ton well into 2010 -- and that contracts for long-term supply now being negotiated could be for prices as low as $300 a ton. 


That took the shares down to $105.01 on Friday from $116.59 on December. (It traded at around $109 Monday.)

But what December takes away December can give back: Volume starts to fall as we approach the end of the year and volatility climbs. (See my Dec. 18 post on end-of-the-year volatility).


As of this afternoon, the stock is up 4% on rumors that Belarusian Potash expects to sign a deal before year's end for supply of potash to China in 2010 at prices closer to $350 a ton. 


This isn't really new news. Wall Street has been expecting this deal with China and hoping for this price for months, but coming after last week's rumors it's enough to move the stock to the upside.


A Goldman Sachs upgrade doesn't hurt, either. The company added Potash to its "Conviction Buy" list.


I think this is all end-of-the-year noise and doesn't change the fundamentals for Potash. They depend on farm incomes and how quickly farmers start to reorder fertilizer. 


As of Monday, I'm leaving my target price for Potash shares at $125. 


At the time of this writing, Jim Jubak owned shares of Potash of Saskatchewan in his personal portfolio.

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