POT CC- We are not like the other fertilizer Cos

Edited Th pm
-----------------

I was only able to hear brief parts of the call bc had to work but this is what I took away so far. This is a great company and even though nitrogen and phosphate businesses are likely to suffer in the next few quarters their primary business by far in terms of world reserves, stock in international players, and production growth is potash and potash is its own animal.

I reiterate that this is a great company. It is unfortunate that the market has treated it like the other fertilizers and like all other commodities. Months ago I had considered going long POT andshort MOS or another fertilizer as a hedge. I didn't bc the strike concerned me and I thought would benefit MOS or AGU. It turns out that AGU is big in Nitrogens and MOS big on phosphates and so though all three sell all three it makes sense to do a spread long POT and short one of these or CF or UYM. I tried to add to POT today and go short MOS but MOS was already down 14% so someone beat me to the punch. It also makes sense to go add to POT and go short the market on a bounce in the market.

One thing is clear: no matter how good the company you have to be hedged in this market to reduce risk. Also, I don't fight the charts unless the market is missing something.

Here I think the market now realize that POT is its own beast. Still, this only works if someone in the market is willing and able to pay for it.

It is clear to me by the open interest in puts that the big houses were once again as was the case just before the last cc, ready to sell POT off heavily. This was to be the last wave down that would completely collapse the fertilizer stock (though not company as the companies are very viable) bubble. POT was going back to 30 eventually and MOS to 10. That is where the companies started several years ago.

It is true that the collapse of grain prices, which can be controlled in the short term by speculators and firms like GS, can affect nitrogen and phosphate demand and prices significantly. I said that I thought POT would miss bc of these two businesses. The reality is that the sharp drop off in nitrogen and phosphate products has really occurred now rather than on the earnings reported from last quarter. These price declines, combined perhaps a bit with the strike, is why POT said they are now expecting full year earnings to hit the lower end of the guidance from $12-13. Still, given the way ag commodities have sold off it is extremely impressive that they have been able to maintain guidance.

So much so that the GS analyst on the conference call asked why heck they couldn't get potash prices to go down like that of the other fertilizers. Clearly in my view the big firms have been shorting these names since the last CC and expected on more bang for their buck. Note that the rest of the ag sector sold off today. The fact that POT did not should not is a huge testament to the underlying value of this company. The question now is whether the stock gets sold off anyway. After the last CC POT beat earnings and guided up and the stock got crushed. Now that the speculators and conditions have done their worst on the grains and fertilizers and POT is much cheaper the question is whether or not the sellers will be confident enough to bring it down further.

I still have my POT put hedges I bought yesterday (though they are small in comparison the the longs). I feel that one of the best companies in the market is on deep discount and I want to buy a ton more. However, in this market I will only layer in, wait for the market to confirm my moves, and short UYM or MOS or CF or some other fertilizer name so that if a great company gets dragged down with everything else I will not take a hit like I did on my original purchase.

I have been successful in the past picking excellent companies at reasonable or great prices. I think I did the same here but the market showed me that all stocks are essentially a type of pyramid scheme with the caveaut that in the long term they do represent real companies. We have a great company on sale at a firesale price. But the market is awful. In a downtrending market with a downtrending sector in oversold conditions it just makes sense to buy a company like POT for the long haul while going short other vehicles as a hedge to take advantage of the difference in quality and sentiment for this company AS COMPARED TO other securities rather than on absolute terms. Please also note also that in my opinion while there is a core long position for me here most stock buys or short sells are trades only. On any overexhuberance in either direction in this market profits must be taken in my opinion.

These strategies are great examples for all traders and investors in this market regardless of actual security held. Like PBR at these prices? Maybe buy some with a hedge of going short some XOM shares for example. Just a hypothetical idea. One thing that I love about this market...

There are no holds barred. Every tactic in the book to take our money is being utilized. Thus if we can make it here we can truly make it anywhere.

That is, as long as we make sure we hold a healthy amount of cash at all times so that by the time we've reinforced our techniques in the toughest of battlegrounds we still have enough capital at the end to employ them.

"The Yellow Rose Street Beat" is for informational purposes only. It does not give investment advice.