I've only had a 1.0% position in Mosaic (MOS) after buying the stock in the $38 range in early August, and happily selling around $50 about 2 weeks ago, for a 32% gain. Well I've decided to start getting that position back. So essentially I re-entering what I sold (plus adding even more), making this is a neutral move (price wise) except for the imaginary brokers who are loving the commissions from my fake fund. After my sale, the stock ran up to $55 Monday before a 2 day pullback of 10%, which is allowing me to get back in (rather than chasing at $55). The stock is still extended but the company is set to report next Tuesday and I believe there is a very good chance of a significant increase in 2008 estimates, if not this quarter, then the one after that.
Current estimates for 2007 are $2.72, up from $2.62 7 days ago and $2.21 90 days ago. Current estimates for 2008 are $3.16, up from $2.94 7 days ago and $2.04 90 days ago. So let's review that last sentence, current estimates for 2008 are UP 52% from where they were 90 days ago. Is that all reflected in the stock? I don't think so. Also I think that $3.16 should continue to see increases as we move forward through 2008. Now, unlike competitor Potash (POT), Mosaic does not have the same ability to expand production of mining of potash, but they will still get the huge price increases - this is why Potash trades at a premium to Mosaic from best my analyst team (consisting of me) can tell.
So at $50, Mosaic trades @ 18x 2007 estimates and 16x 2008 estimates. Again, I think those 2008 estimates will be pushed up over time. (I mean after all analysts have only been wrong on 2008 by 50% so far!) This is cyclical business (hence PE multiples have traditionally been depressed) but we are again, talking about potential sea change as we get the urbanization and modernization of 2 of the world's most populous nations. So I think the food supply worldwide is going to be constrained - not for this year, next year, I see this as a long term major problem barring major technological breakthroughs (in which case I could switch over to a long position in Monsanto (MON)) But until then we must rely on fertilizer. So somehow fertilizer is turning into a growth area - and the market is starved for growth ideas.
Potash valuation is much richer, trading at 33x 2007 estimates and 25x 2008 estimates. So I am going for the cheaper little brother, while still holding a smallish Potash stake. However, Potash is estimated to grow earnings 30% next year, whereas Mosaic only 15%. Again, I think the Mosaic 2008 estimate is too low, hence its year over year earnings growth is too low, so we should see some meaningful PE expansion if this theory plays out.
Technically, Mosaic's 50 day moving average is way down below $45, and its 20 day moving average is below $49. I'll be adding more if we get a break to these levels. Again, this is an extended stock and I don't really like chasing charts, but with Ben "Party Like a Rockstar" Bernanke opening the floodgates of speculation, a 10% "pullback" in an individual name apparently counts as a major correction.
I've moved Mosaic back from a 1.0% position in the fund, to 2.2%.
Mosaic is also a top 10 (#9) holding of the MOO ETF, which is a great 1 stop way to play the long term agricultural 'boom' theme.
Long Mosaic and Potash in fund, no personal position
