Potash (POT) Reverses 16% Intraday

Gotta love the fakeouts by Wall Street. After falling to $97s this morning, Potash (POT) is now up to $113, for a nice 16% intraday swing. As I stated earlier, if I was at the computer I'd be gobbling Potash at $97 since its right at its 50 day moving average, but alas I was not here to take advantage. Also my cash balance was a whopping $1600 entering the day.

Instead I bought more Mosaic (MOS) as it fell to $60 about an hour ago, which has now reversed to $65.50, or about a 9% reversal in an hour. Nuts. I didn't get as much as I wanted as I am strapped for cash. And you already know the #1 position...

Some color on Potash earnings - as I stated this morning the excuse for the sell off appears to be they did not raise already heightened guidance (this is called under promise, over deliver). Also the strong Canadian currency (and taxes) hurt it a bit as well - nothing to do with operations:

• Potash Corp of Saskatchewan (POT) on Thursday said third-quarter profit rose 67 percent as soaring grain prices led to booming demand for fertilizer, but the result fell short of market expectations.
• Shares of the world's top fertilizer company by market value slid as much as 5 percent in early trade after Potash said it earned $243.1 million, or 75 cents a share, up from $145.2 million, or 46 cents, a year earlier.
• On average, analysts had expected a profit of 81 cents a share, according to Reuters Estimates. The company said the results were affected by an increase in its consolidated income tax rate, which hurt earnings by 10 cents per share, and the soaring Canadian dollar, which shaved 7 cents a share off the profit.
• Potash's operating results came as no surprise, said analyst David Silver of J.P. Morgan in a note to clients, but the company's tax rate was higher than expected, he said.
• Sales climbed 36 percent to $1.3 billion during the quarter, up from $953.5 million for the same time last year.
• The company also reiterated it expected to earn $3 to $3.25 per share in 2007, which J.P. Morgan's Silver said was conservative.
• "Our growth in potash this year will be largely volume related, but 2008 should be a strong margin year," Chief Executive Bill Doyle said in a statement. "With potash in tight supply, price increases seem all but certain, and these increases will now flow through to the bottom line."

Again, that last paragraph is the key - this year the increases were due to volume - next year you keep that volume and add margin expansion... nice. The story is just getting started. As CEO says, that all drops right to the bottom line. I think this $4.28 EPS for 2008 is going to look a lot closer to $5.00 when it's all said and done.

Remember this post from Tuesday: Analysts Still Doubting the Fertilizer Stocks
These stocks are going much higher and have the most pricing power of any sector I can find other than dry bulk shippers... although I believe in the sticking power of fertilizer far more than dry bulk shipping rates.

Long Potash, Mosaic in fund; long Potash, Mosaic in personal account