Fertilizer Kings Agrium, Potash Fall To 10-Week Lines

Three Canadian fertilizer makers, all on the uptrend, may be building entry points. Yet one of the three must first regain its 10-week moving average, where on Tuesday they all retreated.
Grain prices have been rising for months. Bad crops have restricted supply, while new consumers among the populations of China, India and other emerging markets are boosting demand. Ethanol, too, is a driving force for corn, especially as oil prices move higher.
Those high grain prices translated into bigger demand for fertilizer, even as those prices climbed.
Farmers, watching corn, wheat and bean prices double and triple, scrambled to put more acreage into production.

But ag markets suffered a big reversal Tuesday on speculation that Ukraine may remove export restrictions for wheat. Profit taking pushed that market to steep losses, and the urge to purge long positions spread to corn and soybeans.

Are these grains entering a bear market? Is the ride over for fertilizer makers? Maybe, but you're best off letting the market guide you into, or away from, Potash Corp. of Saskatchewan (POT), Mosaic (MOS) and Agrium (AGU).

These three highly rated stocks fell to their 10-week lines on Tuesday in heavy volume, not the best way to show such a retreat.

Potash's 10-week line came in at 169.78, Mosaic's at 79.48 and Agrium's at 91.31.
This is the second such retreat for Agrium and Mosaic since they broke out from cup-shaped bases on Dec. 29. Mosaic's volume didn't kick in until Jan. 5 in response to the company's fiscal Q2 report for the period ended in November.

Potash achieved its first 10-week-line retreat since its breakout, also on Dec. 29.

Potash, the target of a failed takeover bid by BHP Billiton (BHP), boosted its EPS in the past four quarters by 224%, 154%, 61% and 124%. Sales rose 43% to 86% in those periods, all compared with weak year-earlier results.

Potash leads its two rivals by annual pretax margin (38% in 2010) and return on equity (28%).
Consensus estimates peg Potash's EPS gain at 52% for 2011.

Mosaic logged triple-digit profit gains in three of the past four quarters, with one result compared with a year-earlier loss. Sales rose in the past four quarters 17% to 56%.
Mosaic is expected to improve its bottom line 113% in fiscal 2011, which ends in May. For 2012, look for 27% growth.

Agrium, with a December-ending fiscal year, is expected to boost its EPS 52% in 2011. Its EPS growth accelerated the past two quarters, from 30% to 78% to 225%.
When the closing bell rang, Potash finished 6% lower, Mosaic 3% lower, both barely above their 10-week line.

Agrium also lost 3% and is about 1% below its 10-week line. But the approach is the same for all three: Buying so near the line after a high-volume fall is perilous. Look for a bounce with solid turnover to confirm that buyers are coming in.