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The Mosaic Company Analysis



October 14, 2011 – Comments (4) | RELATED TICKERS: MOS

Board: Value Hounds

Author: aitraders

I guess I am a glutton for cyclicals. But hey, you know what, whatever goes down, might, just might, come up again.

The Mosaic Company engages in the production and marketing of concentrated phosphate- and potash-based crop nutrients for the agriculture industry worldwide.

I look for long term macro trends and industry dominating companies. I believe Mosaic sits in the sweet spot.

I believe that the population growth worldwide is unavoidable and regardless of recessions or defaults the world will need more food. Given the relatively fixed amount of arable land worldwide, farmers are increasingly dependent on fertilizers for increased yield to produce more of the world's food. The cyclicality of good years and bad years for farmers is unavoidable, but the inescapable trend is that the BRIC countries and emerging markets where so much of the world's growth is coming from is simultaneously creating a growing middle class increasing demand for hitherto more industrialized tastes for things like meat and chocolate and the like. The inevitable result is the demand for more agricultural output. Mosaic is the nr. 1 company worldwide for phosphates and are growing their potash business.

They are Canadian meaning North American reliability and stability. They are part of the Canadian Agricultural Exchange that negotiates worldwide contracts for Potash, Mosaic, et al as a group giving even more negotiating clout and price stability between peers.

They have just separated themselves from the Cargill company to become a stand-alone indepent. As of September 2011, they were inducted into the S&P 500.

Yahoo financial key statistics:

Trailing P/E: 8.37
P/B: 1.95

Cash & Cash Equiv.(mrq): $4 b
LT debt: 737 million
Levered Free Cash Flow (ttm): 1.07 billion

I bought my shares during the great recession for around $30. They have gone as high as almost $90 and now are back down around $50.

As usual with cyclicals, the time to buy is when fear of worldwide recession is greatest. As I mentioned above, I look for macro trends of products with unavoidable long term demand and first in class, low cost producer companies with sustainable cash and cash flow generating abilities. eg. copper, chemicals, coal and energy, agriculture (FCX, DOW, JOYG and COP, MOS)

I still believe that Greece has to default and the EU has to admit it publicly, albeit find a way to sugar coat it to minimize the fear and loathing. I believe we still have the S&P going at least under 1100. However, from the last energetic rally's on the scantest of good news, it is clear to me that last earnings season has proven that, while the world is not ready for euphoria, we are still far removed from the Lehman Brothers and as long as the banks are lending to each other, another GREAT recession shouldnt happen and an S&P down to 900 is unlikely. Investors WANT the rally to happen sooner than later.

Therefore I have been mentioning some of these companies that appear to be presenting good entry points as their stock prices get bashed on fear alone. If MOS goes to $50 or under, I believe there is ample margin of safety for a good rebound.

As usual, my next step is to go to the Gurufocus DCF calculator, type in '0' growth for ten years, 3% terminal growth with a 15% discount rate.

Fair Value £ 70.23

Ten Year Financials

First Quarter Results from company website.

I already own shares and am very pleased with the way the company is being run and has performed.

FWIW and IMHO and IIRC and all that disclaimer stuff to keep me from looking like an idiot, which I assure you I'm not, I dont think.

Does anyone remember Mr. Kimball from Green Acres?

long MOS

4 Comments – Post Your Own

#1) On October 14, 2011 at 1:09 PM, amassafortune (29.11) wrote:

With oil down, and looking like it will remain weak into the next growing season, fertilizer-related companies should perform better than average. These companies get the double benefit of lower production costs and also a break on the high transportation cost of their bulky and heavy products.

A good pick. I agree the price has a little more room to drop before it becomes an absolute bargain.

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#2) On October 14, 2011 at 7:02 PM, memoandstitch (< 20) wrote:

I already own 4 of the 5 stocks you mentioned.  You have a good eye lol.  MOS is a solid company.  If you are waiting for the sub-50-per-share train, you have already missed it.  It departed last week.  The question now is whether mid-50 is a good entry point.

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#3) On October 15, 2011 at 2:25 AM, awallejr (56.97) wrote:

Been burned on that stock in the past.  If you want to play the agri/potash field, heck with Mos, go Pot or Agrium.

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#4) On October 17, 2011 at 4:01 AM, aitraders (60.79) wrote:

I think one would make money on mid-50 as well.  I do believe it will go back up to -80, but one just has to be cognizant of the fact that it can easily go back down before it goes up.

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