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We have retained our Neutral recommendation on leading fertilizer company Potash Corp. of Saskatchewan, Inc. (POT - Analyst Report). While the company may gain from a recovery in fertilizer demand in 2013, it is exposed to a weak pricing environment and a still challenging demand scenario in India.

Why Kept at Neutral?

Both revenues and earnings for first-quarter 2013, reported on April 25, topped Zacks Consensus Estimates. Revenues climbed by double digits year over year, driven by higher potash demand. Potash Corp. registered a rise in sales volumes for potash and nitrogen in the quarter.

Potash Corp., a Zacks Rank #3 (Hold) stock, has a competitive advantage stemming from its mining rights to the world's largest potash reserve. The company has a strong geographic diversification and continues to invest in expanding its operational capability in potash.

While there is uncertainty surrounding the U.S. economy and the sovereign debt crisis in Europe, the strain on the world's food supply is driving demand for all three nutrients of the company, especially potash. Given the tight potash supply in North America and Latin America, the demand for potash is expected to rise as buyers are now seeking to secure the product.

With more than half of the world's estimated new supply coming from its projects between now and 2015, Potash Corp. believes that it can capture a significant share of demand growth over the next several years.

However, Potash Corp. is exposed to macroeconomic uncertainties and price volatility. Average realized potash price dipped around 17% year over year in the first quarter. Pricing pressure was also witnessed in the phosphate segment.

Moreover, Potash Corp. is seeing somewhat weak potash demand in India, a key market. The Indian government's move to trim potash subsidy levels coupled with higher retail pricing is hurting demand in that country. These challenges may sustain through first-half 2013.

Other Stocks to Consider

Other companies in the basic materials sector with favorable Zacks Rank are American Vanguard Corp. (AVD - Snapshot Report), OM Group Inc. (OMG - Snapshot Report) and Ferro Corp. (FOE - Snapshot Report). While both American Vanguard and OM Group retain a Zacks Rank #1 (Strong Buy), Ferro carries a Zacks Rank #2 (Buy).

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