Buy Alert: July 31, 2013

Marcus Haber | July 31, 2013

Buy Alert: July 31, 2013

Trade Details

Buy Potash (POT) September 2013 $32 Calls for $1.15 or better

Why?

The potash industry was shocked yesterday with the exit of Russian giant Uralkali from one of the two potash producer cartels in the world. Uralkali, the largest single potash producer in the world, plans now to flood the market with potash in order to lower the price and spark demand.

Of course, lower potash prices will significantly impact the top and bottom lines for the other major potash producers in the world, such as POT and Mosaic (MOS). That’s why the stocks are getting crushed.

However, like always, I see this as an overreaction by investors. Yes, lower prices will hurt in the short-term. Nevertheless, higher demand will ultimately be a big boost to the currently stagnating industry – especially in places like India and China.

And don’t forget, the market is forward looking. Once investors realize lower potash prices will benefit the industry in the long-run, they’ll jump back onboard looking for a bargain. We’re going to beat the crowd to the punch by grabbing the September $32 calls now.