Analyst: Agricultural Demand Looking Very Bullish for Potash...

Analyst: Agricultural Demand Looking Very Bullish for Potash Stocks
Source: Click here

Potash supplies are tight and agricultural demand continues to rise, leading Macquarie analyst David Pupo to recommend that investors add exposure to companies that supply potash. His favorite name in the sector is Potash of Sasketchewan (POT), in part because the company has the "capacity to expand output sooner rather than later."

"The combination of being in a secular bull cycle in agriculture and the structural elements of tight supplies of potash in a controlled supply environment prompts us to recommend being levered to potash," he writes today "We see pricing power in the hands of producers for an extended period of time enabling companies to control margin expansion for the next few years at least."

Potash is the most highly levered to the potash fertilizer, and has made investments in recent years that will allow it to expand capacity to catch up with demand, Pupo writes. The potash market has high bariers to entry that make the stock appealing too.

"Barriers to entry into the tight potash market favor those producers with capacity to expand output sooner rather than later."