Potash Corporation of Saskatchewan (POT) advanced over 2,200% from its first stage breakout the week of July 25, 2003 to its peak the week of June 20, 2008 and crashed along with the market during the financial crisis. The stock ran up 400% from its financial crisis low, only to sell off over 50%, but in a more orderly fashion, forming a multi-year bullish descending wedge. Potash has managed to breakout above the descending wedge and is currently forming a tight cup shaped base with plenty of accumulation just above the descending wedge.
Industrial companies like Potash tend to see their stock prices advance ahead of good fundamentals, but there are usually clues. The company has significantly beaten analysts estimates the last two quarters by 14.3% and 21.7%, respectively, and analyst have been raising estimates. Margins have shrunk for two straight years, but return on equity is a respectable 19%. Sales and earnings growth have been negative, but are expected to turn positive over the next few quarters and years. The dividend has increased for the last five years and now yields approximately 4.1%.
If Potash can improve pricing power, which will lead to higher margins, it can continue to delivering earning's surprises that will carry the stock higher. Investors and traders have to be patient over the next few days and allow the stock to digest the recent multi-day spurt, and consider entering the stock as it breaks above the recent high of $36.67, with a initial protective stop at recent lows around $33.42. Depending on the pullback, the stock could produce a tighter entry on the pullback. There is a lot of overhead supply for the stock to work through, but the stock should be able to run to the high of the cup shaped base of around $38 over the near term, and into the $45 - 60 range over the long term. Tighter stops can be used once the stock breaks out.
Full Disclosure: No Current Position