Potash stocks may sound like a boring investing proposition, but one glaring fact should make you sit up and take note of the industry: The United Nations projects the world population to jump by one-third to 9.7 billion by 2050. That also means a dire need to grow more crops to meet the rising demand for food even as arable land shrinks. Enter potash -- one of the world's three most widely used nutrients in fertilizers that can boost soil fertility and crop productivity.
Potash's role in helping the imminent food problem forms a strong investment thesis for potash stocks. The U.S. potash markets are presently ruled by three companies: Potash Corporation of Saskatchewan (POT), Mosaic (MOS 0.15%), and Agrium (NYSE: AGU). They are also the only members of Canpotex, one of the world's largest marketing associations that handle all potash exports outside the U.S. and Canada. Such is the significance of potash in agriculture that mining giant BHP Billiton, too, would've been a major potash player today if it didn't have to put the brakes on its Jansen potash project in the wake of an industry downturn.
After a struggle that lasted several years, the potash industry finally appears to have left the worst behind. Potash prices are stabilizing as demand from key international markets is catching up to supply, thanks to the collective efforts of leading manufacturers like PotashCorp and Mosaic to curtail production over a period of time. The time looks right to get some potash stocks back on your radar, but make no mistake: Not all stocks may be worth your money. Case in point: Intrepid Potash (IPI -0.67%). But before I explain why Intrepid Potash may not be worth your money, let's check out the investment-worthy potash stocks first.
The first choice among investors in potash stocks is arguably PotashCorp, and for good reason. Aside from its potash namesake that strikes with investors, PotashCorp also offers maximum exposure to investors interested in the nutrient as the largest potash producer in the U.S. and the third-largest in the world after Uralkali and Belaruskali.
However, having to sell SQM at a time when lithium is soaring on the back of rising demand for electric-vehicle batteries means PotashCorp is about to lose a solid investment that could have earned handsome returns and dilutes some of the merger's advantages to PotashCorp. I'd keep PotashCorp and Agrium stocks on the radar, but bet only after I've waited at least a quarter or two after the merger to see that the companies are integrating smoothly and are on track to generate $500 million in synergies as they've forecast.
Instead, you could look at Mosaic right now, which is among the five largest manufacturers of potash and the largest combined manufacturer of potash and phosphate in the world. Mosaic is doing a lot of things right in both its potash and phosphate business.
On the potash side, Mosaic's potash mine is expected to start production in the middle of next year. K3 will not only eliminate annual brine costs worth $150 million but is expected to be one of the lowest-cost potash mines in the world in the long run.
By the end of 2020, Mosaic expects to generate $1 billion in cumulative cash flow and is targeting a fixed annual dividend of $0.10 per share. It's worth noting that Mosaic slashed its dividends sharply in the past year, but I don't foresee further cuts. Mosaic is controlling costs, has a comfortable debt-to-equity ratio of 36%, and has been free-cash-flow positive throughout the downturn. With the stock now trading at a price-to-book value of only 0.8, which is less than half that of PotashCorp's, and only 9.7 times cash flow compared with PotashCorp's P/CF of 13, Mosaic looks like a great potash bet today.
Unlike the strong stories for Mosaic, or even Nutrien, Intrepid Potash looks like a lost cause. Mind you, the stock has nearly tripled in just a year and a half, but it's trading at a fraction, or only about 20%, of its 2012 prices. More importantly, that recovery in its share price wasn't backed by improving potash fundamentals. On the contrary, investors have been pinning hopes on Intrepid's diversification away from potash to salt, magnesium chloride, and byproducts like water. Yes, you read that right: water.
Intrepid Potash found itself in a muddle after potash prices tanked. Unable to make money amid lower potash sales and higher costs, Intrepid breached debt covenants early last year. The company's auditor only made things worse by raising concerns about whether Intrepid can survive at all. A market downturn and a liquidity crunch proved lethal.
Intrepid Potash's management has, fortunately, been able to avoid bankruptcy so far. In the past one year, the purely domestic sales-focused potash producer has also reduced its debt by a substantial margin and lowered its production costs. While the latter can be credited to the use of solar evaporation techniques to produce potash from brine, Intrepid has resorted to rapid share issues -- and hence dilution of shareholder wealth -- to pare down debt. That's a yellow flag in my investing books, and I see no reason whatsoever why investors in potash should risk putting money on Intrepid Potash.
This situation is creating positive fundamentals for the agricultural sector, including the potash market. A larger population means that much higher amounts of food will be needed; however, with more people will come further urbanization and less farmland with which to work, meaning farmers will have no choice but to increase crop yields.
That's where fertilizers like potash come in. Potash fertilizer not only provides essential nutrients to food, but also improves water retention in plants and strengthens their roots and stems. It also has a role to play in the burgeoning cannabis industry.
Unsurprisingly, many investors are wondering what potash is and how they can gain exposure to the potash market. Read on to find out more about potash investing, and whether it may fit into your portfolio.
What is potash First, it's important to understand what potash is: an alkaline potassium compound that is most commonly used in fertilizers. All in all, 95 percent of the world's potash supply is used to grow food.
The term \"potash\" refers to potassium compounds and potassium-bearing materials. It includes potassium chloride, which is a salt-like mineral that is naturally white or colorless, but sometimes takes on a pink or red color due to impurities such as clay.
According to the US Geological Survey's latest data on potash, global output came in at 46 million metric tons (MT) in 2021 and consumption sat at 45 million MT. Global potash consumption is projected to grow in 2023 and beyond.
Canada stands out as the top potash-producing country with output of 14 million MT in 2021, the vast majority of which was from the province of Saskatchewan. Russia was the second largest producer that year, with potash output of 9 million MT. Belarus came in third, close behind Russia, with production totaling 8 million MT of potash.
The potash sector has suffered from oversupply in recent years, and that has created lower prices and put pressure on potash producers. That said, Russia's war in Ukraine and its use of Belarus as a staging ground have led to export sanctions on the two countries, which prior to 2022 accounted for a combined 40 percent of global potash supply.
Our lists of potash companies on the TSX and TSXV, as well as on the ASX, are also good places to start. And for more on potash in Australia, check out Top 5 ASX Agricultural Stocks and Potash and Phosphate Investing in Australia.
The shares of Canadian fertilizer and potash producers have started looking attractive lately. The recent Russian invasion of Ukraine has made investors worried that the war could hurt the supply of key fertilizers, including potash, in the near term. This has led to a recent rally in the prices of fertilizers, which could help the shares of some top fertilizer and potash stocks on the TSX keep soaring.
As the prices of potash and other fertilizers continue to rise amid the ongoing Russia-Ukraine conflict, you could expect Nutrien stock to continue soaring. Apart from its positive short-term outlook, the company continues to focus on its long-term strategy targets and key sustainability priorities, which also make this fertilizer stock worth considering for the long term.
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Here at Zacks, our focus is on the proven Zacks Rank system, which emphasizes earnings estimates and estimate revisions to find great stocks. Nevertheless, we are always paying attention to the latest value, growth, and momentum trends to underscore strong picks.
Of these, perhaps no stock market trend is more popular than value investing, which is a strategy that has proven to be successful in all sorts of market environments. Value investors use a variety of methods, including tried-and-true valuation metrics, to find these stocks.
On top of the Zacks Rank, investors can also look at our innovative Style Scores system to find stocks with specific traits. For example, value investors will want to focus on the \"Value\" category. Stocks with high Zacks Ranks and \"A\" grades for Value will be some of the highest-quality value stocks on the market today.
Another valuation metric that we should highlight is IPI's P/B ratio of 0.80. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. This company's current P/B looks solid when compared to its industry's average P/B of 1.72. Over the past 12 months, IPI's P/B has been as high as 2.35 and as low as 0.70, with a median of 1.14. 781b155fdc