Potash Stocks Continue Fall, Credit Suisse Slashes POT, IPI To Sell

Potash companies were falling for a second day in a row today, as investors worried that moves by a Russian cartel will push down prices.

Potash Corporation of Saskatchewan (POT) was falling 4.5% while Intrepid Potash (IPI) tumbled more than 8% and Mosaic (MOS) lost 5%.

Credit Suisse analyst Christopher Parkinson downgraded both Potash Corp. and Intrepid to Underweight today, noting "the end of a pricing era", with new target prices of $27 and $11, respectively. He maintained a Neutral rating on Mosaic, although he reduced his target price to $41 from $65.

Parkinson writes that he thinks that Uralkali’s strategy will "eventually lead to a full breakdown of industry discipline and consequently further pricing pressure in the 2H13 and into 2014."

More thoughts from his note:

The Russians Aren’t Bluffing, the Threat to Pricing is Real: We believe Uralkali’s strategic move to target volumes and subsequently leave Belarusian Potash Corporation (BPC) was only a matter of time (albeit clearly unexpected in the near term), with recent market share losses in Latam and lack of pricing discipline on Belaruskali’s end acting as the boiling point. At the risk of losing market share (even in a growing market) we believe Canpotex producers will have no choice but to gradually follow suit and drop price in order to defend their respective growth outlooks, particularly with additional capacity coming on-line during the next ~2 years.

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Expect Pricing to Gradually Fall During the Balance of ’13 and into ’14: In the near term we expect volumes to likely freeze, with pricing gradually falling in 2H13 and into 2014. Once the dust settles, we expect a Chinese contract in the ~$300/mt level (for 2014), with spot pricing in Brazil/SEA dropping to the ~$350/mt range for large customers. We also note there is a risk to the North American pricing spread versus international due to increases in domestic import pricing pressures (deriving from Uralkali).

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Why Genworth Earnings Are Set to Soar

Genworth Financial (NYSE: GNW  ) will release its quarterly report tomorrow, but investors have already gotten a head-start in celebrating. With the recovery in housing greatly bolstering the creditworthiness of mortgage-backed securities compared to their financial-crisis lows, companies that insure those bonds against loss have bounced back sharply, and Genworth earnings look poised to reap the benefits.

Genworth Financial does more than just insure mortgages, with a full line of other insurance products as well. But lately, institutional investors have paid a lot of attention to Genworth's rivals in mortgage insurance, and the segment has been a big part of the company's overall success recently. Let's take an early look at what's been happening with Genworth Financial over the past quarter and what we're likely to see in its quarterly report.

Stats on Genworth Financial

Analyst EPS Estimate	10 Best Energy Stocks To Buy Right Now $0.29
Change From Year-Ago EPS	81%
Revenue Estimate	$2.44 billion
Change From Year-Ago Revenue	(4.7%)
Earnings Beats in Past 4 Quarters	3

Source: Yahoo! Finance.

How far can Genworth earnings soar?
Analysts have largely held their views on Genworth earnings steady in recent months, with just a single penny increase in earnings-per-share estimates for the full 2013 year. The stock, though, has gone through the roof, climbing 34% since late April.

Genworth's positive momentum continued when it announced its first-quarter results at the end of April. With its profit more than doubling, Genworth's gains centered on its mortgage-insurance business, which reversed a year-ago operating loss with a profit of $21 million. The company also saw substantial gains globally from its mortgage business.

Genworth's results are consistent with the gains that its mortgage-insurance peers have experienced. Both Radian Group (NYSE: RDN  ) and MGIC Investment (NYSE: MTG  ) have posted impressive gains that have attracted the attention of hedge-fund investors seeking to capitalize on the strengthening housing market. Yet in the long run, the question that faces the entire industry is whether lenders will even want to make mortgage loans with inadequate down payments that require mortgage insurance in the first place. Some would argue that tighter lending standards would make mortgage insurance unnecessary, while others note that lenders might choose to demand insurance beyond the current standards of roughly 20% to 25% home equity that have historically triggered the contractual need for purchase-money insurance in mortgage contracts.

Beyond mortgage insurance, not everything has gone well at Genworth. Its long-term care insurance business continues to struggle, with operating profits having fallen by more than 40% as Genworth struggles to get regulators to allow it to increase rates enough to make the business economically viable. Major competitors MetLife (NYSE: MET  ) and Prudential (NYSE: PRU  ) have already pulled back from long-term care, and Genworth might have to follow suit if it can't find other ways to make money from the segment. In addition, Genworth joined other insurers in settling claims that it and others failed to pay policy benefits to life-insurance customers, serving as a reminder that litigation risks continue to exist throughout the financial industry.

In the Genworth earnings report, watch to see whether the company comments on any impact from higher interest rates on mortgage activity. If banks start making fewer mortgage loans, it could dry up Genworth's policy-underwriting growth, potentially putting an end to the huge growth the company has seen recently. 

Many investors are terrified about investing in big financial stocks after the crash, but among lenders, there's one notable stand-out. In a sea of mismanaged and dangerous peers, it rises above as "The Only Big Bank Built to Last." You can uncover the top pick that Warren Buffett loves in The Motley Fool's new report. It's free, so click here to access it now.

Click here to add Genworth Financial to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Can Student Loans Crush Big Banks?

In this segment from Thursday's edition of The Motley Fool's everything-financials show, Where the Money Is, banking analysts Matt Koppenheffer and David Hanson discuss the growing concerns around former students being unable to repay loans and the potential reputational risk facing the big banks holding some of these loans.

While many of the biggest banks have scaled back student lending, some firms like Discover Financial Services have moved into the area more aggressively. Matt and David tell investors if they see this as a reason to be nervous about holding a big bank stock.

It's not just student loans...
Many investors are terrified about investing in big banking stocks after the crash, but the sector has one notable stand-out. In a sea of mismanaged and dangerous peers, it rises above as "The Only Big Bank Built to Last." You can uncover the top pick that Warren Buffett loves in The Motley Fool's new report. It's free, so click here to access it now.

You can follow David and Matt on Twitter.

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