Phosphate and Potash Create a Profitable Mosaic

04/10/2019 5:00 am EST

Focus: COMMODITIES

Crista Huff

Editor, Cabot Undervalued Stocks Advisor

Stocks in our "Buy Low Opportunities Portfolio" have strong projected earnings growth, low-to-moderate price/earnings ratios and low-to-moderate debt levels; investors should be willing to wait patiently for these stocks to climb, explains Crista Huff, value expert and editor of Cabot Undervalued Stocks Advisor.

The Mosaic Company (MOS) is the world’s largest supplier of phosphate and potash, supplying crop nutrients and animal feed ingredients via production facilities in the U.S., Canada, South America and the Asia-Pacific region.

One thing that stands out in Mosaic’s March 28 "analyst day" presentation is the string of successes in cost-cutting throughout their businesses. Management additionally anticipates lowering costs in their phosphate business by 15% over the next two years, largely through technological advances.

The fast-growing fertilizer market in Brazil provides continued growth prospects for Mosaic, where the company is logistically well positioned, especially in light of the poor logistical infrastructure that competing companies are left to deal with.

MOS is an undervalued mid-cap stock. Poor U.S. weather impacted myriad U.S. industries. Mosaic expects to achieve second quarter sales volumes that compensate for lower-than-expected first quarter revenues.

The company is willing to return excess capital to shareholders via an existing share repurchase authorization. Management intends to be cautious with the dividend, making sure to be able to consistently pay the dividend while preserving balance sheet integrity during trough periods in their economic cycle.

MOS recently pulled back amid weakness among peers’ stocks, and now appears to be rebounding. At a share price of 27.68, there’s 21% upside as MOS heads back to its February high of 33.5. I rate the stock a buy.

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