Seeking Alpha
Research analyst, dividend growth investing, portfolio strategy, special situations
Profile| Send Message|
( followers)  

To be a successful investor you need some carefully planned investment disciplines. One of the most important disciplines has to do with knowing ahead of time how much you want to pay for the shares of a company you'd like to own. Two companies that have business models and products that make great sense in today's fast-growing world are The Mosaic Company (NYSE:MOS) and Potash Corporation of Saskatchewan (NYSE:POT).

The Mosaic Company engages in the production and marketing of concentrated phosphate- and potash-based crop nutrients for the agriculture industry worldwide. The company also offers phosphate-based animal feed ingredients; and produces and sells potash for use as fertilizers and animal feed ingredients, as well as for use in industrial applications.

Its potash products are also used for de-icing and as a water softener regenerator. The company's distribution facilities include sales offices, port terminals, crop nutrient blending and bagging facilities, and warehouses. It sells its products primarily to wholesale distributors, retail chains, cooperatives, independent retailers, and national accounts. The company was founded in 2004 and is headquartered in Plymouth, Minnesota.

Potash Corporation of Saskatchewan Inc. produces and sells fertilizers and related industrial and feed products primarily in the United States and Canada. The company mines and produces potash, which is used as fertilizer. It also offers solid and liquid phosphate fertilizers; animal feed supplements; and industrial acids that are used in food products and industrial processes.

In addition, POT produces nitrogen fertilizers, as well as nitrogen feed and industrial products, including ammonia, urea, nitrogen solutions, ammonium nitrate, and nitric acid. Further, it holds the right to mine 785,759 acres of land in Saskatchewan; and 58,263 acres of land in New Brunswick in Canada.

The company sells its fertilizers primarily to retailers, dealers, co-operatives, distributors, and other fertilizer producers; industrial products primarily to chemical product manufacturers; and purified phosphoric acid directly to consumers of the product. Potash Corporation was founded in 1953 and is based in Saskatoon, Canada.

It's a good idea for any potential investor to look at both these companies web sites and carefully examine what they and others are saying about them and their future:

  • Potash's web address is here.
  • Mosaic's site can be found here.

You can learn so much on both these sites.

For instance, I noticed an announcement on the MOS site that stated:

Mosaic and Cargill Corporation [one of the largest privately-owned multi-national companies in America based in Minnetonka, Minnesota] have agreed to a transaction that will result in the orderly distribution of Cargill’s 64 percent stake in Mosaic to Cargill’s shareholders and debt holders.

This transaction will give Mosaic more of a free hand to create long term value for shareholders and increase its flexibility to pursue its strategic and financial goals.

This has the potential to open Mosaic's options when it comes to growing its businesses, making strategic acquisitions, or putting itself up for sale at some point.

Now let's look at a comparative chart of the stock-price movement of MOS and POT over the past 12 months. First let's look at an MOS chart with the 50 and 200-day moving averages and then the POT chart followed by a comparison chart:

Chart forMosaic Co. (<a href='' title='The Mosaic Company'>MOS</a>)

Chart forPotash Corp. of Saskatchewan, Inc. (<a href='' title='Potash Corporation of Saskatchewan Inc.'>POT</a>)

Chart forMosaic Co. (<a href='' title='The Mosaic Company'>MOS</a>)

Obviously Mosaic has under-performed Potash, and it wouldn't surprise me if the board of directors and the shareholders are not pleased about this. Mosaic has a lot of cash and by comparison very little debt. Their year-over-year quarterly earnings growth is a stellar 64%.

Potash has a lot more debt, a lot less cash, although their quarterly earnings growth is around the same as MOS, weighing in at nearly 65%.

The idea of a "margin of safety" when buying any stock involves buying shares of good companies when they go "on sale", and buying those shares as low as possible.

The charts above as well as the historical prices of both companies over the past 12 months speak for themselves. The POT chart looks a lot more favorable then the chart for MOS, with the MOS chart showing the 200-day MA above the 50-day. From a technical perspective this is a negative, and it is symptomatic in my opinion of the many obstacles that MOS has apparently had to navigate (especially with the controlling influence of Cargill) the past 12 months.

My hunch is that things are about to change for the better for MOS, and the share price recently seems to confirm that somewhat:

  • POT has some good fundamentals going for it. It's profit margin (trailing-twelve-months) is a healthy 32% and operating margin is over 40%. The quarterly revenue growth (year-over-year) is also 32%.
  • MOS has, in the same order as POT above has margins of 25% and 27% and quarterly revenue growth of an impressive 54%.

Looking at share price, I'd love to exercise the discipline to wait and see if MOS shares fall to their June 17th, 2011 intra-day low near $58.84. For POT on that same day the intra-day low was around $50.60. Anywhere near those prices would be an attractive entry-level, but we are heading towards the season where share prices of companies like POT and MOS tend to move higher.

If you must own a few shares to satisfy your needs, POT may dip below $58 before this debt-crisis, "trauma-drama" is concluded. It also wouldn't surprise me to see MOS below $68 at some point soon. Yet, no one knows for sure, so keep some "powder" dry in case we have a bargain-basement sale on both stocks.

With both companies' products and services in high demand, and with the amount of revenue (ttm) they generate (MOS $10 billion and POT $6.55 billion), it's easy to imagine the share price of both being significantly higher before the end of the year.

How high? I'd be willing to wager a guess that POT may be above $67 by the end of December and MOS may break above $89 once again. If we can "buy low" on these two we may have the pleasure to "sell high" within 6 months or thereabouts.

By the way, two of their international competitors are the Chilean company Sociedad Quimica y Minera (NYSE:SQM) and the Canadian firm Agrium (NYSE:AGU). Let's keep an eye on all four companies to see if they move in tandem in the days ahead.

Source: Mosaic, Potash: Prelude to the Next Buying Opportunity