Mosaic Profits on Rising Food Prices

Rising Food Prices Will Boost Debt-Free Mosaic Co. (NYSE: MOS) to New Highs

OCTOBER 31, 2011

BY JACK BARNES, Global Macro Trends Specialist, Money Morning

With so many companies – and countries – choking on the combination of slow growth and massive debt, investors are finding that there’s a definite formula for success.

You need to look for companies that have healthy cash reserves, a global presence in a high-growth sector, and whose shares are available at a bargain price.

I’ve already found one to help get you started.

I’m talking about The Mosaic Co. (NYSE: MOS), an agricultural leader that’s positioned to benefit from the worldwide run-up in food prices.

Mosaic is the world’s leading producer of concentrated phosphate and potash, two of the primary nutrients required to grow food crops.

One of the main reasons I really like Mosaic is that it has enough cash – $3 billion – to fund its own growth. It doesn’t need to borrow from banks to continue generating profits from crop-nutrient sales.

That’s a profitable niche, since global food prices are expected to increase 4% next year, and could climb higher on supply squeezes. Increasing food demand and poor harvests have caused sharp climbs in the price of corn and other crops. And those price increases have translated into higher prices for pork, beef and poultry. The profitable agricultural industry outlook is enticing farmers to grow more, and will create a steady profit stream for Mosaic.

Mosaic’s shares recently hit a 52-week low; but don’t let that price dip fool you: While the market is currently pricing Mosaic for a significant slowdown in earnings, the reality is far brighter. It’s time to buy The Mosaic Co. (**).

The Mosaic Co.

The Mosaic Co. is a young company with old roots, formed in 2004 from a merger of two giants in the crop nutrition businesses. This combination united profitable phosphate miner IMC Global Inc. with Cargill Inc., one of the world’s top producers of phosphate and nitrogen fertilizer.

The resulting Mosaic Co. has grown into the largest producer of concentrated phosphates, and one of the leading providers of potash crop nutrients.

Mosaic’s global reach – it has operations in 10 countries and serves markets in more than 30 nations – has allowed it to accurately estimate and provide for global product demand. It’s this excellent business execution that helped Mosaic become debt-free, and then to amass a cash hoard of more than $3 billion.

This helped the company post an excellent first quarter for fiscal 2012, the second-highest-grossing first quarter in its history. The company’s net earnings for the quarter ended Aug. 31 were 77% higher than the same quarter last year. Earnings per diluted share were $1.17, a 75% gain from 67 cents per diluted share in the first quarter 2011.

Mosaic’s revenue now totals more than $10.3 billion in the trailing twelve months.

Fitch Ratings Inc. recently estimated Mosaic will earn $3.7 billion in EBITDA (earnings before interest, taxes, depreciation, and amortization) in fiscal 2012, a 19% gain from the $3.1 billion earned last year.

The stock is down 18% so far this year, but this has more to do with Cargill unloading its core investment in the company – essentially dumping a big block of shares on the market.

Mosaic’s stock has rebounded from a 52-week low of $44.86 earlier this month to close at $61.96 Friday.

At this price it’s still a bargain, giving us a chance to buy at extremely favorable prices.

The company has a market capitalization of $20 billion. The stock is trading at a Price/Earnings (P/E) ratio of less than 8, making it cheap in comparison to the overall market’s P/E ratio of about 13 to 15.