Wednesday, January 16, 2008

Potash going to Pot?

Potash (POT 134.69) traded down to 127.82, then rallied 10 points to 138, before closing at 134.69. This stock has now made it's top and is heading lower.

The Ag stocks moved because nothing else was working; therefore they had much higher multiples than they deserved because of the scarcity of winners. Now the market is reappraising these stocks and it's not going to be pretty.

In POT's last quarter, they wrote down the value of $112.5 million of AAA securities by $20 million. Anyone think the value of these has gone up?

Other short-term investments consist of AAA-rated auction rate securities with maturities extending through 2046, including collateralized loan obligations with a face value of $48.3 million and collateralized debt obligations with a face value of $84.2 million. As of September 30, 2007, the balance recorded in other short-term investments was $112.5 million (face value $132.5 million), resulting in an unrealized holding loss of $20.0 million. The unrealized loss represents the company’s estimate of possible diminution in value as of September 30, 2007 resulting from the lack of current liquidity for these investments at period-end. The decline in value is presently considered temporary.

The company is exposed to liquidity and credit risk on its other short-term investments due to the current lack of liquidity for the company’s investments in auction rate securities that has existed since August 2007; therefore the company is holding such securities longer than the approximately 28 days that was originally anticipated. While the company is uncertain as to when the liquidity for such securities will improve, it currently expects liquidity within a year

Now $20 million may not seem like much, but back in August, this stock was at $80 a share. Wall Street is re-pricing these stocks, and will look at these stocks with much more scepticism.

In this environment, who is going to pay 10X sales for a fertilizer company?

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