POTASH CORP. OF SASKATCHEWAN INC. $112 (Toronto symbol POT; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 296.0 million; Market cap: $33.2 billion; Price-to-sales ratio: 7.8; Dividend yield: 0.4%; SI Rating: Average) is the world’s largest fertilizer producer. It has six potash mines in Saskatchewan and one in New Brunswick. Five of its mines have reserves of between 60 and 97 years.

Potash Corp.’s sales rose 145.5%, from $3.8 billion in 2005 to $9.4 billion in 2008 (all amounts except share price and market cap in U.S. dollars). That’s mainly because potash prices climbed from $143 a tonne in 2005 to $449 a tonne in 2008.

Thanks to the higher prices, Potash Corp.’s earnings soared from $1.63 a share (or a total of $542.9 million) in 2005 to $11.01 a share (or $3.5 billion) in 2008. Cash flow per share rose 411.9%, from $2.53 in 2005 to $12.95 in 2008.

In 2009, farmers cut their fertilizer use because of lower crop prices. Moreover, good weather and large amounts of residual fertilizer in the soil led to better-than-expected harvests.

In response, many potash producers, including Potash Corp., cut their production to keep inventories down and stabilize prices. Even so, the company’s average realized potash price only fell to $428 a tonne.

Lower prices plus lower potash production pushed down Potash Corp.’s 2009 sales by 57.9%, to $4.0 billion. Earnings dropped 70.5%, to $3.25 a share (or $987.8 million). As well, cash flow fell 64.7%, to $4.57 a share.

In January 2010, China, the world’s largest potash consumer, agreed to buy potash from a Belarussian company for $350 a tonne. That put further downward pressure on potash prices. However, fertilizer prices should move up again in the next year or two, as farmers exhaust the residual fertilizer in the soil and return to normal fertilizer usage rates.

Portfolio holdings an overlooked asset

The company is taking advantage of the weak economy to expand its investment portfolio. It recently paid $250 million to increase its stake in Israel Chemicals Ltd., the world’s sixth-largest potash producer, to 13.9% from 12.5%.

Potash Corp. also holds interests in potash producers in China, Jordan and Chile. These investments contributed $205.4 million to its 2009 earnings. As of January 27, 2010, their market value was $24 per Potash Corp. share.

The company’s strong balance sheet helps cut its risk: Potash Corp.’s $3.3 billion of long-term debt is a low 11% of its market cap. It holds cash of $385.4 million, or $1.30 a share.

Potash Corp.’s 2010 earnings will probably rebound to $6.10 U.S. a share. The stock trades at 17.3 times that estimate. It also trades at 14.2 times its likely 2010 cash flow of $7.40 U.S. a share. The $0.40 U.S. dividend yields 0.4%.

Potash Corp. is a buy.