If you’ve spent your life as an investor looking for a company that’s worth its salt, then you need to take a look at Compass Minerals (CMP), the nation’s largest miner of sodium chloride and one of the best stocks to buy for the past five years.

Shares were up 5% in March, and 19% this year. The company is also up 133% since the bull market topped out in October 2007, which is a pretty outstanding feat all by itself. And for good measure, I’ll point out that Compass was up 45% in 2008 alone when the rest of the market was peppered in losses.

Compass is classified as a chemical company, but what it really does is mine rock salt for use at kitchen tables and in highway deicing and also sulfate of potash, an important ingredient in fertilizer. It has grown earnings per share quite admirably over the past several quarters in no small part due to the cold winter weather, which helped it sell a lot of road salt. The company also raised its quarterly dividend by 10% in February and now pays 1.9% per year.

The company has been benefiting from secular increases in demand both for de-icing salt as well as for its fertilizer products; demand for both is rising faster than historical trend lines. The company stands out in providing a commodity product through its low-cost advantage. That comes from having long held productive salt mines in Ontario, Louisiana and the United Kingdom with easy access to river or ocean transportation, and also a technologically advanced solar evaporation plant next to the Great Salt Lake of Utah, where it produces low-cost sulfate of potash.

The company’s main biz is done through its North American Salt Co., Sifto Canada and Salt Union Ltd. units. They’re the leading salt producers and provider of residential sidewalk and highway deicing products (including the SafeStep, Thawrox and ArcticClear brands) in North America and the British Isles. The product is also used in table salt, swimming pools (Sure Soft, a healthier alternative to chlorine), livestock feed (the American Stockman brand) and food processing, and industrial manufacturers use Compass minerals to produce bleach, detergent, plastic, glass and disinfectants.

Those of you who live in warmer climes may not realize that industrial-grade salt melts snow and ice on contact through a powerful, self-initiating chemical reaction. Melting can occur even in exceptionally low-temperature environments, such as -25 F. High-end formulations prevent the salt from hurting nearby vegetation and concrete.

Salt is necessary in industry, the kitchen and the farm, and Compass is one of the world’s leading low-cost producers. It’s not crude oil, it’s not gold, it’s not iron ore — but this company has kept pace, or outpaced, firms that produce those more glamorous materials, with much lower volatility.

Analysts estimate that Compass will earn $5.83 per share in fiscal 2010 and $6.54 in 2011. My model suggests those guesses are about 10% low, so figure $6.14 and $7.19. With the current price at $80, that makes the current PE around 13x and the forward PE around 11x. The company’s high PE in the past has been 30x and its low 10x. If the PE were to rise back to 15x, the price based on 2011 estimates would be as high as $107 later this year, or 34% higher. It’s a buy on consolidations. 

For more ideas along these lines, check out my Trader’s Advantage newsletter.

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