Potash stocks may sound like a boring investing proposition, but one glaring fact should make you sit up and take note of the industry: The United Nations projects the world population to jump by one-third to 9.7 billion by 2050. That also means a dire need to grow more crops to meet the rising demand for food even as arable land shrinks. Enter potash -- one of the world's three most widely used nutrients in fertilizers that can boost soil fertility and crop productivity.
Potash's role in helping the imminent food problem forms a strong investment thesis for potash stocks. The U.S. potash markets are presently ruled by three companies: Potash Corporation of Saskatchewan (NYSE: POT), Mosaic (NYSE: MOS), and Agrium (NYSE: AGU). They are also the only members of Canpotex, one of the world's largest marketing associations that handle all potash exports outside the U.S. and Canada. Such is the significance of potash in agriculture that mining giant BHP Billiton, too, would've been a major potash player today if it didn't have to put the brakes on its Jansen potash project in the wake of an industry downturn.
After a struggle that lasted several years, the potash industry finally appears to have left the worst behind. Potash prices are stabilizing as demand from key international markets is catching up to supply, thanks to the collective efforts of leading manufacturers like PotashCorp and Mosaic to curtail production over a period of time. The time looks right to get some potash stocks back on your radar, but make no mistake: Not all stocks may be worth your money. Case in point: Intrepid Potash (NYSE: IPI). But before I explain why Intrepid Potash may not be worth your money, let's check out the investment-worthy potash stocks first.
Investors in Intrepid Potash should exercise caution. Image source: Getty Images.
Intrepid Potash's management has, fortunately, been able to avoid bankruptcy so far. In the past one year, the purely domestic sales-focused potash producer has also reduced its debt by a substantial margin and lowered its production costs. While the latter can be credited to the use of solar evaporation techniques to produce potash from brine, Intrepid has resorted to rapid share issues -- and hence dilution of shareholder wealth -- to pare down debt. That's a yellow flag in my investing books, and I see no reason whatsoever why investors in potash should risk putting money on Intrepid Potash.
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Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.