Potash Stocks Can Beat The Market If This Happens

Bernstein’s Jonas Oxgaard maintained Outperform ratings for Potash Corporation of Saskatchewan (USA) POT and Mosaic Co MOS, after the two companies reported their 4Q15 earnings.

Analyst Jonas Oxgaard maintained a price target of $38 for Mosaic, while reducing the price target for Potash from $24 to $23 due to ammonia price changes.

Oxgaard believes that although Potash Corp reduced its dividend by 35 percent, it is unlikely to announce any further cuts. He added that investor fears regarding a similar cut by Mosaic are unfounded.

Mosaic is capable of sustaining its capex, growth capex, investments, repurchases and dividend targets for 2016 from its operating cash flow and cash cushion credit line. Oxgaar added, “We see both stocks' dividends as safe, giving investors an appealing a 4-6% yield to hold and wait for share price appreciation.”

The analyst believes that potash prices are set to recover, while ammonia prices are expected to first stabilize and then recover. Stable MAP/DAP pries and flat phosphate rock prices are expected to drive the performance of the two companies.

The guidance by both Potash and Mosaic is consistent with a recovery in potash prices in the first half, driven by demand for the spring planting season and an increase in the second after a renegotiation of the China contract.