Tuesday, February 12, 2008

Stock of the Day: Potash (POT)

My Stock of the Day is Potash Corp (POT).

This stock has held up well during the recent market correction, causing its relative strength ratings to move higher. It briefly dipped below its 50-day average on Jan. 17, but quickly recovered within 4 days.

The fact that it remained above its 50-day recently, and not far off its previous highs, put the stock in good shape to stage another breakout. That breakout occurred today.

The stock gapped higher this morning, and volume has been strong. Many of the stocks in the agribusiness group are strong today, but POT is leading.

The CEO was on CNBC's Fast Money last night, and painted a very bullish picture of the supply and demand picture for potash (both the company and the product). He said that potash is in short supply and will stay that way all year.

He said the picture is bright around the globe. Farmers get a huge return on investment from the increased yield of good fertilizers, so they are more than willing to pay higher prices for it. That has enabled POT to put through several price increases, as well as bring on idle capacity.

The profit picture continues to look bright for POT and the ag stocks, even as they trade at what looks like high multiples relative to historical P/Es. I was getting cautious on the group, but breakouts like this make it likely that the run continues.

long MOO


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