The Mosaic Company (MOS)

Mosaic's is a prime example of a solid stock punished by the mass market selloff. Trading at $31.13 today, it is well off its 52 week high of $163.25. As long as people eat, there will be a need for fertilizer and animal feed nutrients. Given that the company has future of forseeable demand and given its strong fundamentals, Mosaic is due for a rebound.

Phosphate fertilizers are in high demand. Look for explosive (pardon the pun) EPS growth with Mosaic. Company reports 4/9/08. Current ROE not as high as I like but the demand for this product continues to rise as the landscape is being covered with corn.

Price increases here have not slowed the demand. However, some Ethanol Plant projects have been pulled back due to prices of corn.

Look for oil companies to start blending ethanol with gasoline (perhaps 10%).

Mosaic (MOS) is one of the biggest producers of fertilizer in the world. It is the largest producer of phosphate fertilizers worldwide (16% global market share), and is #2 in potash fertilizers (15%), second only to fellow Magic Formula stock, Potash Corporation of Saskatchewan (POT). The company is vertically integrated, controlling the supply chain from the mining of phosphates and potash, through processing, through production and sale of the fertilizer end product. Phosphates account for about half of Mosaic's sales, while potash accounts for about a quarter, with the other quarter coming mainly from offshore distribution and resale. The company was formed through a merger of IMC Global and Cargill's fertilizer business, and Cargill maintains majority ownership.

Fertilizer is basically a commodity product, distinguished by end users only by price. But to really understand Mosaic's competitive position, we must understand the basic dynamics of the fertilizer industry. There are 3 types of fertilizers: nitrogen based, phosphate based, and potash based. Weekend gardeners might recognize these 3 numbers from the side of a fertilizer bag (nitrogen-phosphorous-potassium, or N-P-K). The different fertilizer producers generally skew towards one of the three types, and this greatly affects competitive position as the underlying dynamics are quite different.

Nitrogen fertilizer producers, like Terra Industries (TRA), have virtually no moat because nitrogen fertilizers are created by combining the extracted hydrogen from natural gas with the nitrogen in the atmosphere. Since both input components are readily available, producing nitrogen fertilizers is a business with low barriers to entry, creating lots of competition and severe pricing wars.

Phosphate fertilizer producers like Mosaic rely on mined phosphate rock as a key input component. Phosphate rock is not really a scarce commodity. It is usually found in marine deposits and is not especially difficult or expensive to find or mine. Mosaic's competitive advantages in phosphates are accentuated by it's vertical integration. Non-integrated competition is at the mercy of input costs for phosphate rock, and when these rise, the costs are passed on to customers. Mosaic benefits from these price increases without suffering from the rise in input costs. However, a large number of state-owned operations compete with Mosaic in the phosphates market, which can be difficult because profit is not always their main motivation for pricing. Historically this industry has been one of wild price swings, in both the pricing for fertilizer and in input costs such as sulfur and natural gas. This makes both revenue trends and gross margin wildly variable. Consider that Mosaic is currently running gross margins over 35%, but just two years ago the figure was 12%!

Potash fertilizer is a much more attractive business. Potash deposits are rare and very difficult to mine, requiring an initial capital outlay of over $2 billion dollars, creating very high barriers to entry and creating a unique asset moat for those that already operate them. Over 70% of the world's supply is owned by a consortium of which Mosaic is a member. The nature of this segment limits competition, which in turn limits pricing volatility. Mosaic benefits from a competitive advantage here.

Growth potential is so-so. Worldwide population growth continues to outstrip the growth in arable land, forcing farmers to become more productive with current lands. Emerging economies lead to more food consumption, increasing fertilizer demand. However, many believe that the ethanol boom is partly to blame for higher crop prices. Ethanol demand faces a weak outlook, as oil prices drop and more momentum gains behind the anti-ethanol movement.

Financial health is pretty good. The huge windfalls of the past 2 years have allowed Mosaic to pay off much of it's debt. Net cash is a positive $1.4 billion. The balance sheet is in solid enough shape to survive another downturn, if that in fact happens.

Magic Formula investors could do worse than Mosaic. The company has some durable competitive advantages, both structurally (in potash) and through scale and cost benefit (in phosphates). However, this is much too unpredictable of a business to qualify for a Top Buy consideration. Crop prices, competition, and input costs have all been historically volatile, leading to huge swings in profitability. Today's price may be dirt cheap if 2008 conditions continue, or fairly priced if 2007 conditions return. Who knows? Best to find a more predictable play in the MFI screen.

Mosaic will lead the Ags with earnings reports this Thursday. The April reporting period is generally bullish for fertilizer companies as farmers have completed their orders for the spring planting season. Commodities are starting up, farmers have access to credit, people need to eat, Mosaic's P/E is still sub 6, with 30% margins and over 50% ROE. Cash on hand exceeds debt by a hefty margin. While 52 week high is not a good indicator in a recession and ferts probably overshot their mark last year, Mosaic is still at only 25% of it's 52 week high. Bulls charge!

play on growing food demand in developing markets and depleting grain supplies due to drought in Australia; Q4 earnings up 433% following three quarters of triple digit eps growth and stellar sales growth; support at 10-week avg but has had long run out of base.

Although I'm a little concerned that the P/E and Peg are a little high I love this company's foreign exposure. Add to that the largest corn crop since 1944 and there is some serious upside to this stock.

the economy will resume growth in 5 yrs along with the strong demand for its aggie products

This growing food shortage problem is going to get worse and since the dems are going to be taking over the White House, I'm pretty sure right now is a good time to get into agricultural chemicals. Say hello to government aid money.

The Mosaic Company (Mosaic) is a producer of phosphate and potash combined, as well as nitrogen and animal feed ingredients. The Ag Sector is on fire and good for 3-6 months

The current situation with global demand for food will continue as emerging markets continue to change to a meat based diet. This global demand looks to continue to increase going forward and now that grains are used to feed animals, they are increasingly hard to get in places like Africa that still have that type of diet. All forms of food commodities will continue to increase in demand as this continues.

Moo. Following the herd. Makes sense though. We all love to eat. Regardless of who sells us the finished product, the sourcing of the food chain is essential. Fertilizer is the Midas touch that turns the back forty into the bread basket.

This company will continue to increase its profits in that fertilizer will become more and more important as the population of the world expands. The companys phosphates business will lead their sales.

thats right, the Colinator is back. Part of my Super 8
MOS AAPL RIMM NVDA DGP INP FXI STP

Solar, India, China, Strong Brand Tech, Agri and Gold.

Inflation, stealing wealth from us all.
In 1968 a Corvette cost $5,000.
The cost of Food is going up.
Answer: Obama and his congress will tax it.
Charming.
MOS, it's a Buy. While you can.

Living in a farm community with actual working farmer friends, I have heard more than once their concerns about fertilizer supplies. The growth in biofuels and world population should be positive in the long term for companies like Mosaic.

Market correction has made many stocks undervalued. This is one of them. The company is in the hot fertalizer market. Look for this stock to rebound and continue its strong growth.

Looking at the financial sheets between POT. Potash Vs. Mosaic MOS. I feel Mosaic should be trading much higher!

AG still has long term secular growth. Last I checked the global population was growing.

With the country in a recession, ag and food products should continue to rise. This stock should post positive gains (not just beat S&P 500's near term decline).

Have you looked at what analysts think this stock will make in '09? Up from ttm of 2.13 to $3.67 for the remainder of this year (May '08) and $5.67 in '09. The current price does not have this kind of growth built into it.

I typically do not jump into stocks that have had 300% run-ups in the past year because these are usually WAY over priced. MOS may not yet be over priced.