Mosaic: Putting the Pieces Together

10/02/2015 7:00 am EST


George Putnam

Editor, The Turnaround Letter

Our latest featured turnaround recommendation is one of the world’s largest producers of phosphate and potash fertilizers, notes George Putnam, editor of The Turnaround Letter

Mosaic (MOS) was formed in 2004 to combine the IMC Global fertilizer company with the fertilizer business of agribusiness giant Cargill.

Strong agricultural demand around the globe drove Mosaic’s stock price up sharply in 2007-2008 only to have it decimated in the recession that followed the 2008 financial crisis.

The recession led to excess capacity in the industry, which held phosphate and potash prices down for several years. 

Then in 2013, a break-up of a phosphate marketing cartel in the former Soviet republics put further pressure on the price of that commodity.

Earlier this year it looked as though Mosaic’s stock was finally beginning to recover, but then it was hit by concerns about slowing growth in China.  As a result, the stock now trades for only about a quarter of its 2008 high.

Growing global population, together with a move toward increasing urbanization in developing countries, will require increased agricultural efficiencies and spur demand for phosphate and potash fertilizers. 

Although the stock fell during the recent China-related sell-off, we do not expect Chinese demand for agricultural products to fall off the way it has in other sectors. 

While China’s industrial strategy may be forced to change, the government’s most fundamental policy driver is promoting and maintaining social stability, and at the most basic level, that means keeping the people well fed.

In addition to investing in the business, management is committed to returning a substantial portion of this cash flow to shareholders in the form of dividends and stock repurchases. 

The stock has a nearly 3% dividend yield and the company has occasionally paid sizeable special dividends in the past. There is also an ongoing $1 billion stock repurchase program.

We believe that Mosaic stock is an attractive way to participate in the need for growth in global food production that is likely to continue for many decades. 

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