I like fertilizer company Potash Corp. (POT) at current levels, and I'll tell you why in a minute.
But first, let me just say that when I buy stocks, I'm a value investor and contrarian -- which means I like companies that have positive earnings but are cheap to purchase. In other words, I look for stocks whose prices have come down substantially from where they were one or even two years ago.
I like Potash because it fits those criteria. It's cheap on a price-to-earnings basis, while the stock is currently trading at around $20 a share -- very far down from the roughly $47 it sold for back in February. That's a big discount.
The company's earnings are also positive, as is the forward outlook for them. And get this -- POT pays a 7.5% dividend!
Sure, it's been hit by commodity prices' collapse, but that's another reason why I like it. It's a contrarian play on commodities. You're buying cheap.
Now, a lot of investors like buying stocks when shares are cheap but the companies themselves are losing money. But I don't. After all, losing money is a serious problem.
Some companies might turn those around losses, and I guess some folks like to play the turnaround game. But I don't, because losing money can and often does create problems that aren't so easy to emerge from.
On the other hand, companies that still manage to make money in a poor growth environments (Potash's revenues have been shrinking) look like well-managed businesses in my book.
What about Potash's competitors? Well, Let's check them out:
- Terra Nitrogen (TNH) has very little volume, so I'd stay away.
- CF Industries (CF) fits all of my investing criteria. The stock has taken a real shellacking in just the past three months, falling 34%. CF also pays a decent dividend of almost 3% -- not as high as Potash, but still decent. Forward earnings estimates are also positive, while the P/E is a reasonable 11.5.
- Agrium (AGU) doesn't look too bad. The stock is off about 23% from its highs earlier this year, but it's still an $80 stock and that might be too much for some folks. In addition, it has a somewhat higher P/E of 16. I generally don't like to go over 15x, as that represents an almost 7% earnings yield. On the plus side, AGU pays a 4% dividend.
- Mosaic Co. (MOS) is another agricultural-chemical company that's gotten clobbered. The stock is down about 44% since the spring -- but like the others, it has compelling metrics and pays a dividend. But MOS just settled U.S. environmental regulators' claims by agreeing to pay a relatively small fine of $8 million, but spend another $170 million on cleanup and create a $630 million trust to pay for one facility's closure. That clouds the earnings outlook. However, results should still remain positive (albeit significantly reduced) even with those measures.
As for Potash -- my personal favorite -- there's another reason why I like it: it's a Canadian-based company. That means it's not only a good value stock, but also a good play on the Canadian dollar.
As a long-time forex trader, I think the Canadian dollar is really beaten down and due for a rally. That could help Potash's stock outperform its U.S.-based competition, although I should note that Agrium is also a Canadian firm.
