Potash Corp./Saskatchewan (TSX: POT)(NYSE: POT) appears to be entering a turning point after a year of higher sales volumes and with the gradual rebound in potash prices soon to be reflected in revenues.
Potash Corp., however, is a company whose stock value is hard to predict. While the long-term picture for the company is supported by the fact that its business is fertilizer, and we the demand for fertilizer will only go up as the world’s population grows, over the short-term the company’s stock can be quite volatile. If you are considering investing in Potash Corp. or are already a shareholder here are three things, two pros and and one con, of the company’s business.
1. Improving fundamentals: This year, the company sold record volumes of its namesake nutrient, a development that was a welcome relief after in 2013 Russian potash producer OAO Uralkali ended its fertilizer co-operative in favour of pursuing a volume over pricing strategy. After the development, Potash Corp. said it would stand firm on its pricing over volume strategy, but there were concerns that Potash Corp.’s sales volumes would suffer as buyers would increasingly turn to OAO Uralkali for a better price. Now that these concerns have been lifted and potash prices are improving, Potash Corp. is positioned for a better year in 2015.
2. A great long-term picture: The long-term demand for fertilizer is supported by the simple fact that we have a growing global population while the amount of arable land we have is shrinking. Demand in North America may be volatile from year to year as farmers assess their crop health against the need to fertilizer, but overall, globally, demand will increase. Much of this demand will center in the emerging economies such as China and India who are undergoing a population boom while at the same time the wealth of the general population is improving. Over the long term we have to think globally about Potash Corp.’s future, and that future is bright.
1. Results can be volatile: If you are an investor who craves stable, predictable results then Potash Corp./Saskatchewan might not be the right investment for you. The company’s results can be hard to predict because demand for fertilizer can be volatile, and hard to predict. Fertilizer demand depends on the yield farmers are getting from their fields, and yields depend on weather. Weather of course is impossible to control. So a major downside is the fact that it is basically impossible to accurately forecast demand for the company’s products. This means that as an investor, there is a level of uncertainty that you will have to get used to.
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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 Leia Klingel owns shares of PotashCorp. The Motley Fool owns shares of PotashCorp.