Fertilize and Water Daily for Stock Growth

Investors looking to jump into the newest hot public offering used to go ga-ga over technology. Now, they look at fertilizer.

Shares of Intrepid Potash Inc., the largest producer of potash in the U.S., jumped 56% in their first day of trading as investors gobbled up shares of the agricultural play, giving it the best one-day return for any U.S. initial public offering larger than $10 million in 2008. The company priced 30 million shares of stock at $32 a share, higher than originally expected.

The potash market has a few things in common with the market for publicly traded potash names — scarcity and demand. Scott Sweet, senior managing partner at IPO Boutique, which tracks initial public offerings, says the costs to get into the potash business are high, leaving a handful of well-capitalized players. According to Intrepid’s prospectus, the top five worldwide producers of potash have 64% of market share.

As a result, returns for the publicly traded potash companies have been outstanding. Potash Corp. of Saskatchewan, Mosaic Co., and Agrium Inc. posted one-year gains of 239%, 119% and 376%, respectively. Mr. Sweet says there are few other such companies of this size (the Intrepid deal was $960 million), and as a result, these names may continue to rally.

“There’s every reason to consider that these stocks will continue to do well,” he says. As to whether these stocks are in a bubble phase, he doesn’t think so, but says “over the last several months, you’ve got some momentum players in.”

Prices of potash, one of three key ingredients in plant fertilizer, have soared due to worldwide demand and the scarcity of the product — it is only mined in 12 countries worldwide, and Intrepid noted in its offering prospectus that “potash prices increased throughout 2007 and this trend is continuing into 2008 due primarily to potash demand increasing faster than potash supply.”

Last week, a consortium of major potash producers agreed to sell potash to China at triple last year’s price. The average Midwestern U.S. delivered list prices for potash per ton rose to $502 at the end of the first quarter, compared with $214 at the end of the first quarter of 2007, according to Intrepid. “It’s tough to see that going away in the very near-term,” says Matt Pherian, analyst at Renaissance Capital in Greenwich, Conn.--seeking alpha