3 Reasons to Buy Potash Corporation of Saskatchewan

What makes PotashCorp different from other mining companies?

The Motley Fool

Whenever a new CEO takes over, it’s always nice to lay out a big welcome mat. And that is exactly what PotashCorp (TSX: POT)(NYSE: POT) did on Thursday morning, with earnings above expectations for the first quarter of 2014.

It was the last earnings release under longtime CEO and industry legend Bill Doyle – on July 1st, Jochen Tilk will take his place. And it was a great quarter too. Thanks to strong demand, earnings came in at 40 cents per share, well above guidance of 30-35 cents per share. Mr. Tilk will thus have some nice momentum to work with once he assumes his new role.

The company’s shareholders will certainly be celebrating these results too. Below are three reasons why you should become one of them.

1. Strong and consistent demand

It’s easy to forget that PotashCorp is a miner. Because when one typically thinks of mining companies, one thinks of extreme cyclicality, wildly fluctuating prices, and China’s slowing growth. But the story is different when it comes to potash.

While potash demand will fluctuate slightly depending on farm incomes and planting seasons, in the end it is dependent on people’s need for food, something that doesn’t swing wildly. In fact with rising populations and increasing meat consumption – which requires more fertilizer – potash will see steadily increasing demand in the coming decades, no matter what happens in China.

2. Industry supply issues

While many metals can be mined all over the world, there are very few known potash deposits. And while Canada is the world’s largest potash producer, second place goes to Russia. But with all the turmoil going on in Ukraine, and the threat of further sanctions against Russia, the country’s contribution to global supply is up in the air.

3. A beaten-up price

The past few years have not been very good for PotashCorp or its shareholders. The company’s shares have returned -9.5% per year over the past three years, resulting in a stock price that seems very depressed. By comparison, shares of Agrium (TSX: AGU)(NYSE: AGU) have returned 7.6% per year over the same time period.

It is true that potash prices are down, which has contributed to the depressed share price. But there is a strong argument, based on supply and demand fundamentals, that it will be difficult for potash prices to go much lower. So for PotashCorp shareholders, it’s just a matter of waiting for a rebound.

Foolish bottom line

The most important thing to remember about PotashCorp is that it is not like other mining stocks. It does not face the same risks, and thus is a safer option for your portfolio. And as Mr. Tilk gets set to take over, the company has some nice positive momentum too. He is certainly hoping this will continue.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair holds no positions in any of the stocks mentioned in this article. The Motley Fool owns shares of Potash Corp. Agrium is a recommendation of Stock Advisor Canada.

More on Investing

Business man on stock market financial trade indicator background.
Tech Stocks

This Growth Stock Is Down 26%: Buy, Sell, or Hold?

While many growth stocks took to the sky after the December 2023 earnings, this one growth stock fell 26%. Should…

Read more »

Man data analyze
Dividend Stocks

1 Magnificent S&P 500 Dividend Stock Down 39% to Buy and Hold Forever

NextEra Energy is among the largest utility companies in the world, which has delivered inflation-beating returns in the last 20…

Read more »

stock research, analyze data
Dividend Stocks

2 Magnificent Stocks to Buy That Are Near 52-Week Lows

Do you want to add some magnificent stocks to your portfolio? Here are two discounted options that you will regret…

Read more »

Dividend Stocks

Don’t Miss This Once-in-a-Decade Chance to Lock in a 9% Dividend Yield

Is your passive income portfolio earning a decent dividend yield? Here is an opportunity to boost your portfolio with a…

Read more »

four people hold happy emoji masks
Metals and Mining Stocks

Got $200? 2 Lithium Stocks to Buy and Hold Forever

Lithium stocks may not be in the headlines like chip stocks, but they have just as much growth potential over…

Read more »

Dividend Stocks

If You Invested $10,000 in BCE Stock in 2010, This Is How Much You Would Have Today

There are many ways to earn money from the same stock. Here are three ways to invest $10,000 in BCE…

Read more »

Senior Couple Walking With Pet Bulldog In Countryside

3 TSX Stocks That Could Help Make You Rich by Retirement

TSX stocks like goeasy have the potential to outperform the broader equity markets by a wide margin and deliver solid…

Read more »

Happy family father of mother and child daughter launch a kite on nature at sunset
Dividend Stocks

3 Things You Need to Know if You Buy Gildan Stock Today

Gildan stock (TSX:GIL) rose after a dividend increase, but there is still a lot of turmoil behind the scenes that…

Read more »