Equity Research Analyst Ben Isaacson of Scotiabank Global Banking and Markets Says: Take Profits on Potash Stocks and Switch Into Nitrogen Names as Potash Strength Begins to Crack

Wall Street Transcript

67 WALL STREET, New York - July 18, 2014 - The Wall Street Transcript has just published its Agriculture & Specialty Chemicals Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs and Equity Analysts. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Chemicals Companies Pricing Power - Emerging Market Demand - Specialty Chemicals and Fertilizer Pricing Power - Raw Material Costs - Potash, Nitrogen and Phosphate Markets

Companies include: Agrium Inc. (AGU), CF Industries Holdings, Inc. (CF), BHP Billiton Ltd. (BHP), Potash Corp. of Saskatchewan, (POT), Chemical & Mining Co. of Chile (SQM) and many more.

In the following excerpt from the Agriculture & Specialty Chemicals Report, an expert analyst discusses the outlook for the sector for investors:

TWST: Broadly speaking, what is your outlook for fertilizer stocks for rest of the year?

Mr. Isaacson: We think there is a very interesting inflection point occurring among the fertilizer equities. We have been nervous about nitrogen, with stocks such as Agrium (AGU) and CF Industries (CF) moving lower over the last few months. Now that we're getting to a clear bottom of the nitrogen market, as well as a potentially bottom for grain prices, we should start to see some improvement and little bit more confidence that we've hit floor commodities prices. Therefore, we expect nitrogen stocks, led by Agrium, to outperform in the back half of the year.

Potash stocks have shown remarkable strength year to date, but now that we're seeing signs of this strength cracking a bit, we expect potash stocks to move lower, probably by a good 10% over the next six months. Accordingly, we are telling our institutional clients to take profits on potash stocks and switch into the nitrogen names.

TWST: What are some of your favorite names right now?

Mr. Isaacson: We are starting to see more interest by investors as to whether BHP Billiton (BHP) could take another run in PotashCorp (POT) again, although it's not a view we necessarily subscribe to. PotashCorp's share price has outperformed its potash peers by about 10% year to date, and this is likely the reason why.

In terms of the economics, BHP can spend about $20 billion to build a 10-million-ton potash mine, which could take up to 15 years to construct. One alternative is for BHP to spend $40 billion buying PotashCorp, followed by a BHP sale of PotashCorp's non-potash assets, such as nitrogen, phosphate, and its four equity investments. The result is that BHP could benefit by one, paying a lower price per ton of potash; two, get 70% more potash in its portfolio; and three, have the availability of the tons today, rather...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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