Potash Corp./Saskatchewan (USA) (POT)

TheGarcipian (98.67) Submitted: 8/13/07 9:54 PM : Start Price: $88.85 POT Score: 41.77

As pointed out to me by AeroFool, China & India are going to be setting the new demand curves on the world stage for agricultural products, especially considering that so many Chinese will be moving into the middle class over the next 3-5 years and will be demanding new & improved foods and food sources, better pricing, competitive agricultural processes, and improved time-to-market conditions. In looking at the financials of POT, I think it is in a better position than its competitor MOS, though both should benefit from China's influence. Specifically, I like their profit & operating margins (20% and 28%, resp.), RoA (11.3%), RoE (23%), and that their Revenue ($4B) is greater than one-ninth their Market Cap ($27.7B) (that's just an internal number I use myself to gauge companies on a relative basis). I'm not crazy about the high P/E (forward=22.5, trailing=34.5!), but I'm hoping (really hoping!) that the Chinese growth spurt is going to be as big as "they" say it's going to be. And even if it's not, with quarterly Revenue and Earnings growth (YoY) of 47.9% and 63.2%, respectively, I think they have a good shot over the long haul. Personally, I'd like the FCF (free cash flow) of $621M to be a little more, as that's only 2% of their Market Cap but a nice healthy 15.4% of their Revenue stream. Plus, with this being a capital intensive business, there's some debt expected, but POT has kept it fairly low with a Debt/Equity ratio of only 30.5%. Just hope I've not missed the POT Party Train (now there's something to disclose to my employer!).

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