Potash Corp. of Saskatchewan
on Tuesday rejected an unsolicited $38.6 billion takeover offer from Anglo-Australian mining king
. BHP's offer came in at around $130 per share, or a 16% premium to the stock's closing price from Monday.
As good as that offer might look to any shareholder who was long the stock prior to the bid, the company made it abundantly clear that the offer was inadequate.
Potash Chairman Dallas J. Howe said in a statement that the BHP offer substantially undervalues the company. "We believe the timing of your proposal is highly opportunistic given that, among other things, the industry is still in the early stages of a recovery," he said.
BHP's move helped to spark a big rally in the fertilizer sector, driving up names like
The news got even more exciting today when BHP Billiton decided to bypass Potash's board and take their offer directly to the its shareholders with a hostile bid. BHP is hoping that shareholders will take the money and tender their stock at $130 per share.
BHP is clearly trying to capitalize on a booming uptrend for the fertilizer and agriculture commodity prices. It especially wants to snap up Potash, because like its name, potash is used to improve the quality and yield of crops and it's in very limited supplies. Currently, it is mined in only 12 counties in the world.
An even bigger reason that BHP wants a piece of the ag space is due to the rapidly increasing demand for food that is being driven by population growth. According to the United Nations' Food and Agriculture Organization, global population is set to soar to 9.1 billion by 2050 from its current levels of 6.8 billion.
Here 's a look at a number of stocks that could be great plays on the
Investors, who don't want to play the fertilizer sector with just one individual name, should look toward a more diversified way to play the space with ETFs.
The most popular ETF for this sector is the
Market Vectors Agribusiness ETF
, which is also the most liquid and heavily traded. This pure play on the ag complex holds positions in some of the best capitalized and most compelling names in the space. Some of the funds top 10 holding include
at 4.6% of assets,
Deere & Company
at 4.66% and
This ETF should follow the trend and trade much higher as long as the bullish fundamental picture remains intact, and especially if more M&A activity goes down. From a technical standpoint, shares of the Market Vectors Agribusiness will break out in the short term if this ETF can manage to get above $48 a share.
Another great ETF to play this space with is the
PowerShares DB Agriculture Fund
, a rule-based index composed of futures contracts on some of the most liquid and widely traded agriculture commodities. Some of the top holdings of this fund include cocoa futures, coffee futures sugar futures and wheat futures. If food demand is going to go through the roof like many analysts are predicting, then this ETF should have some tremendous upside.
From a technical standpoint, I would want to see the DBA breakout above $27 and $29 a share for confirmation that a much bigger trend could be at hand. As I write this, the stock is trading at around $26.15, so a test of those overhead resistance levels could be right around the corner.
If you're looking to supercharge your portfolio in the ag complex, then you might want to check out the
DB Agriculture Double Long ETF
if you're bullish, and the
DB Agriculture Short ETF
if you're bearish. These are 2x leveraged ETFs that look to capture the movements of the agriculture sector. I would not look at these types of ETFs as investment vehicles, but more for short term trading vehicles.
To see more stocks and ETFs that could be great plays on the coming fertilizer boom, such as
iPath Dow Jones UBS Agriculture ETF
PowerShares DB Commodity Index ETF
, check out the
portfolio on Stockpickr.
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