A Strong Picture Is Emerging at Mosaic

by Louis Navellier | March 13, 2013 11:51 am

Shares of agricultural chemicals leader Mosaic (NYSE:MOS[1]) have been moving higher this week. The stock was upgraded by analysts at both Scotia Capital and BMO Markets as demand for fertilizer and phosphates are finally showing some signs of improvement. Both analysts also cited the potential for the company to buy back a substantial amount of stock during 2013. MOS shares are now within 3% of setting a new 52-week high.

I’ve held Mosaic in past years, and if the fundamentals improve I’ll be taking a hard look for inclusion again. The need for fertilizers and nutrients to increase crop yields could be one of the greatest growth stories of the next several decades. The global population is projected to increase by almost 2 billion people by 2050, and that growing population is going to eat into the supply of arable land — a double-barreled driver for a company like Mosaic. Demand for potash and phosphates to increase yields should remain elevated for the foreseeable future.

In the near term, we may see a bit of a supply squeeze as the spring planting season begins. Many distributors and end-users delayed purchases in the final quarter of 2012, looking for price declines. As a result, inventories may be a little low and we could see a short-term firming of prices as distributors scramble to meet demand. We are also seeing users switch from nitrogen-based nutrients to phosphates and potash-based fertilizers — a seismic shift that could increase demand for Mosaics products this year.

The biggest source of revenue for Mosaic remains the U.S. agricultural markets, but the biggest growth opportunities lie a bit farther south. Many experts expect Latin America to be the fastest-growing market for crop nutrients over the next decade — and Mosaic is well positioned to capture a strong share of those markets. Brazil is Mosaic’s second-largest market — shipments were at an all-time high last year — and Argentina is coming on strong. LatAm should continue to provide growth for many years to come.

While the long-term outlook for Mosaic is very bright, we need to see some fundamental improvement before considering the stock as a buy. Mosaic is still showing a low grade[2] on Portfolio Grader — annual sales growth, margin expansions and earnings estimate increases give me pause. Bottom line, this is a stock to keep an eye on … but the fundamentals are not quite strong enough to justify a purchase just yet.

Endnotes:
  1. MOS: http://studio-5.financialcontent.com/investplace/quote?Symbol=MOS
  2. a low grade: http://navelliergrowth.investorplace.com/portfolio-grader/stock-report.html?q=mos

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