Bookkeeping: Building Mosaic (MOS) Ahead of Earnings

Next week begins earnings season, and tarnished, tarred and feathered fertilizer company Mosaic (MOS) is one of the early entrants. As older readers know, I usually pull back on almost every position going into earnings due to the 2 sided random risk (can be +/- 20% on a position due to lemming overreaction) but the air is thick with hate for the global growth names so I'm going to take a stab here and see if we can at least build a trade for Mosaic (MOS). Unfortunately there are a lot of cross currents with the mother of all bailouts, and my lack of belief in this markets ability to hold a rally but we'll try anyhow.

Mosaic reports October 1st, and expectations look to be far lower than in any quarter of the last 5-6 at least. I don't know if fundamentals will matter or not, but we could potentially get at least a share buyback. The market capitalization has fallen to $37B now (50% haircut in just a few months) - but Mosiac still does carry some debt, so we'll see if they follow Potash (POT) and try to defend their stock. For the year ending May 2009 analysts finally are up to a reasonable estimate at $14.00, so the company is trading at a forward multiple of... 6. With everyone hand wringing about the death of commodities, comments on fiscal 2010 will be what many focus on (current estimate is near $17). With the high barriers to entry in potash specifically, I don't see any peak earnings until 2011+ but the market disagrees. With the shortages of potash in Canadian ports, I see the company reassuring everyone on '10, but I don't know if it matters in this environment anymore.

Technically, we have an unmitigated disaster, but at least on an oversold bounce there could be upside to $100-$105. That's the best we can hope for in this environment where anything global is hated as people run into US banks and consumer stocks because the US "will lead the world back" from the current slowdown. Of course we will. (pom poms in hand)

As I stated a few months ago, the name of the stocks and the fundamentals just don't matter anymore - a fertilizer stock today is like a bank stock from 6 months ago. When it's oversold, you buy it - hope you got it at a near term bottom - and then need to sell it after it ramps because these are just nameless, faceless trading vehicles with 3 or 4 symbols for hedge funds - not actual companies with fundamentals anymore.

I'm taking this position up to a 2.6% stake. If there is no reaction to a positive earnings report next week I can only assume we'll be talking 2-3x earnings in the coming months for Mosaic. Why not.

p.s. also added more James River Coal (JRCC) as it fell another 7% today following the "buy what is dying today to sell in 48-72 hours when it rebounds" mantra that is dominating this market. Up to a 2.2% stake. When commodities have their 1 day of glory sometime next week we'll have to sell them, and then buy the homebuilders, and financials - which will be selling off at that time. Keep repeating for another 2 years and we should be out of this fine mess ;)

Long Mosaic, James River Coal, Potash in fund; long Mosaic in personal account