Switching From Israel Chemicals To Mosaic

Nov. 25, 2021 5:51 AM ETICL Group Ltd (ICL), MOSAGFS, AVD, BIOX, CF, CTVA, FMC, IPI, NTR, SMG, SQM, XLB, DBA, NTR:CA39 Comments16 Likes

Summary

  • The 'Fertilizers and Agricultural Chemicals' industry is currently running on steroids (or fertilizers if you like).
  • In this article, we run a thorough analysis of the entire industry, coming up with a ranking of all relevant names.
  • Over the past year, we have held a couple of names: NTR, FMC, ICL, and MOS.
  • In this article, we explain why we traded ICL for MOS recently, and how come we don't own the top-ranked name.
  • Looking for more investing ideas like this one? Get them exclusively at Wheel of Fortune. Learn More »

Tractor working in field of wheat

CactuSoup/E+ via Getty Images

Background

Nearly 20 months ago, we issued the first BUY alert for ICL Group Ltd (NYSE:ICL) when the stock touched $4.00.

Two months later, the stock had already lost 1/3 of its value.

ICL stock
Data by YCharts

We bought more. Much more than we did in January 2020.

Three weeks ago, we let everything go when the stock touched $9.

ICL stock price
Data by YCharts

True, it does look as if we have left too early, with the stock jumping 6.5% two weeks after we sold.

Nonetheless, it doesn't change the fact that ICL has been a very fertile investment for us on Wheel of FORTUNE ("WoF).

Purchase Date Purchase Price Sale Date Sale Price Dividends Total Return
01/28/2020 $4.00 11/02/2021 $9.00 $0.22 130.60%
04/03/2020 $2.93 11/02/2021 $9.00 $0.21 214.19%
04/06/2020 $3.00 11/02/2021 $9.00 $0.21 206.86%

Moreover, as soon we let ICL go, we also let The Mosaic Co (NYSE:MOS) in. In other words, we've traded ICL for MOS.

In this article we explain why.

Peer Group (Quant, Wall Street, Recent Total Return)

Here's the peer group of ICL and MOS (per SA "Fertilizers and Agricultural Chemicals" industry):

  • Nutrien Ltd (NTR); former holding of WoF
  • CF Industries Holdings Inc (CF)
  • Intrepid Potash Inc (IPI)
  • FMC Corp (FMC); current holding of WoF
  • Corteva Inc (CTVA)
  • Sociedad Quimica y Minera de Chile SA (SQM)
  • The Scotts Miracle-Gro Co (SMG)
  • Bioceres Crop Solutions Corp (BIOX)
  • American Vanguard Corp (AVD)
  • AgroFresh Solutions Inc (AGFS)
  • Marrone Bio Innovations Inc (MBII)

What we're doing here is collecting data for all names (but the last*), using all sorts of financial metrics.

*MBII has a small market-cap (only $130M) it's the only company among this group which isn't profitable, and it also has a SA Warning ("MBII is at high risk of performing badly") attached to it. AGFS has an even smaller market-cap ($100M) and it's also not profitable, however it doesn't include that warning, and so we do include it in the presented data and ranking (hereinafter).

Once we collect the entire data, we can quite easily point at the best names among this group.

This is different from SA Quant and at the end of this article we will compare our rating, SA Quant, and Wall Street.

Interestingly, even at this point and before we get to the picture, SA quant and Wall Street are from agreeing, especially when it comes to the two stocks this article focuses on.

Based on SA Quant ranking, ICL is 1st and MOS is 3rd.

Symbol Quant
ICL 4.76
NTR 4.73
MOS 4.59
IPI 4.49
CF 4.38
CTVA 4.35
BIOX 3.81
SQM 3.32
AGFS 3.06
FMC 2.88
AVD 2.11
SMG 1.91
MBII 1.21

Based on Wall Street ranking, ICL is 12th and MOS is 9th.

Symbol Wall St.
BIOX 4.66
AVD 4.5
SMG 4.36
MBII 4.2
NTR 4.04
CF 4
FMC 3.94
CTVA 3.86
MOS 3.71
SQM 3.69
AGFS 3.66
ICL 3.4
IPI 1.66

Quite a divergence between these two gauges.

If we arrange the data based on the combined ranking of these two sources, with the top-ranked stock getting 1 and the worst-tanked getting 13, we get the following ranking:

Symbol Quant Wall St. Total Rank
NTR 2 5 7
BIOX 7 1 8
CF 5 6 11
MOS 3 9 12
ICL 1 12 13
AVD 11 2 13
CTVA 6 8 14
SMG 12 3 15
IPI 4 13 17
FMC 10 7 17
MBII 13 4 17
SQM 8 10 18
AGFS 9 11 20

The encouraging news is that both MOS and ICL make it into the "top third" (38.5% to be precise), and that MOS is ranked one spot above ICL.

Looking at the total return of the group since March 23, 2020 shows that the top-5 were IPI, SQM, MOS, BIOX and ICL. These stocks are currently ranked 9th, 12th, 4th, 2nd, and 5th, respectively, based on the above "combined ranking" scoreboard.

ICL Group vs peers price

Raw Data (for the entire peer group)

Below you can find the raw data that we use in order to determine our rating ("Quant", if you like).

Market Cap ("MC")

ICL Group vs Mosaic vs peers market cap

P/E Ratio

PE Ratio ("PE")

ICL Group vs Mosaic vs peers PE ratio

PE Ratio (Forward) ("PEF")

ICL Group vs Mosaic vs peers Forward PE ratio

PE Ratio (Forward 1y) ("PEF1")

ICL Group vs Mosaic vs peers Forward PE ratio

P/E Ranking ("PER") based on P/E Average ("PEA") score:

Symbol PE PEF PEF1 PEA PER
MOS 1 1 1 1.00 1
NTR 2 2 3 2.33 2
ICL 4 5 5 4.67 3
CF 9 3 2 4.67 3
SMG 3 6 7 5.33 5
FMC 8 4 6 6.00 6
IPI 7 7 4 6.00 6
CTVA 5 8 8 7.00 8
AVD 6 9 10 8.33 9
BIOX 11 10 9 10.00 10
SQM 10 11 11 10.67 11
AGFS 12 12 12 12.00 12

P/S Ratio

PS Ratio ("PS")

ICL Group vs Mosaic vs peers PS ratio

PS Ratio (Forward) ("PSF")

ICL Group vs Mosaic vs peers Forward PS ratio

PS Ratio (Forward 1y) ("PSF1")

ICL Group vs Mosaic vs peers Forward PS ratio

P/S Ranking ("PSR") based on P/S Average ("PSA") score:

Symbol PS PSF PSF1 PSA PSR
AGFS 1 1 1 1.00 1
AVD 2 2 2 2.00 2
MOS 3 3 3 3.00 3
NTR 4 4 4 4.00 4
ICL 5 5 5 5.00 5
SMG 6 6 6 6.00 6
CTVA 8 7 7 7.33 7
CF 10 8 8 8.67 8
IPI 7 10 10 9.00 9
BIOX 9 9 9 9.00 9
FMC 11 11 11 11.00 11
SQM 12 12 12 12.00 12

EV/EBITDA Ratio

EV to EBITDA ("EVE")

ICL Group vs Mosaic vs peers EV to EBITDA ratio

EV to EBITDA (Forward) ("EVEF")

ICL Group vs Mosaic vs peers forward EV to EBITDA ratio

EV/E Ranking ("EVER") based on EV/E Average ("EVEA") score:

Symbol EVE EVEF EVEA EVER
MOS 1 1 1.00 1
AGFS 2 3 2.50 2
NTR 5 2 3.50 3
IPI 3 4 3.50 3
ICL 4 6 5.00 5
CF 8 5 6.50 6
AVD 7 7 7.00 7
CTVA 6 11 8.50 8
FMC 10 8 9.00 9
SMG 9 10 9.50 10
BIOX 11 9 10.00 11
SQM 12 12 12.00 12

EV/Revenues Ratio

EV to Revenues ("EVR")

ICL Group vs Mosaic vs peers EV to revenues

EV to Revenues (Forward) ("EVRF")

ICL Group vs Mosaic vs peers forward EV to Revenues

EV to Revenues (Forward 1y) ("EVRF1")

ICL Group vs Mosaic vs peers Forward EV to Revenues

EV/R Ranking ("EVRR") based on EV/R Average ("EVRA") score:

Symbol EVR EVRF EVRF1 EVRA EVRR
AVD 1 1 1 1.00 1
MOS 2 2 2 2.00 2
NTR 3 3 3 3.00 3
ICL 7 4 4 5.00 4
IPI 4 7 5 5.33 5
CTVA 5 5 6 5.33 5
SMG 6 6 7 6.33 7
AGFS 8 8 10 8.67 8
BIOX 10 9 9 9.33 9
CF 11 10 8 9.67 10
FMC 9 11 11 10.33 11
SQM 12 12 12 12.00 12

Dividend Yield

Dividend Yield ("DY")

ICL Group vs Mosaic vs peers dividend

Dividend Yield (Forward) ("DYF")

Symbol DYF
BIOX -
AVD 0.51%
SMG 1.60%
NTR 2.65%
CF 1.84%
FMC 1.83%
CTVA 1.17%
MOS 0.82%
SQM 1.87%
AGFS -
ICL 2.00%
IPI -

DY Ranking ("DYR") based on DY Average ("DYA") score:

Symbol DY DYF DYA DYR
NTR 1 1 1.00 1
ICL 4 2 3.00 2
CF 2 4 3.00 2
FMC 3 5 4.00 4
SQM 7 3 5.00 5
SMG 5 6 5.50 6
CTVA 6 7 6.50 7
MOS 8 8 8.00 8
AVD 9 9 9.00 9
IPI 10 10 10.00 10
AGFS 10 10 10.00 10
BIOX 10 10 10.00 10

Earnings Yield

Earnings Yield ("EY")

ICL Group vs Mosaic vs peers earnings yield

Earnings Yield (Forward) ("EYF")

ICL Group vs Mosaic vs peers earnings yield forward

Earnings Yield (Forward 1y) ("EYF1")

ICL Group vs Mosaic vs peers earnings yield forward

EY Ranking ("EYR") based on EY Average ("EYA") score:

Symbol EY EYF EYF1 EYA EYR
MOS 1 1 1 1.00 1
NTR 2 2 3 2.33 2
ICL 4 5 5 4.67 3
CF 9 3 2 4.67 3
SMG 3 6 7 5.33 5
FMC 8 4 6 6.00 6
IPI 7 7 4 6.00 6
CTVA 5 8 8 7.00 8
AVD 6 9 10 8.33 9
BIOX 11 10 9 10.00 10
SQM 10 11 11 10.67 11
AGFS 12 12 12 12.00 12

EV to Free Cash Flow ("EVCF")

ICL Group vs Mosaic vs peers EV to free cash flow

Price Target Upside (Daily) ("PTU")

ICL Group vs Mosaic vs peers Price Target Upside

Industry Totals

If we sum up all the above rankings, i.e. the ranking for every stock along each category, we end up with the total number of points ("TP") for each name.

Obviously, the lower - the better.

Based on this here's the final ranking ("FR") for this industry based on this "quant" methodology of ours:

Symbol MC PER PSR EVER EVRR DYR EYR EVCF PTU TP FR
NTR 1 2 4 3 3 1 2 2 7 25 1
MOS 5 1 3 1 2 8 1 5 4 30 2
ICL 7 3 5 5 4 2 3 3 11 43 3
CF 4 3 8 6 10 2 3 7 9 52 4
SMG 8 5 6 10 7 6 5 1 5 53 5
AVD 11 9 2 7 1 9 9 8 2 58 6
CTVA 2 8 7 8 5 7 8 6 8 59 7
FMC 6 6 11 9 11 4 6 4 6 63 8
AGFS 12 12 1 2 8 10 12 10 1 68 9
IPI 10 6 9 3 5 10 6 9 12 70 10
BIOX 9 10 9 11 9 10 10 12 3 83 11
SQM 3 11 12 12 12 5 11 11 10 87 12

Pay attention:

  1. This isn't (and we don't claim it to be) science. It's a fairly simplistic way to come up with a reasonable/easy ranking, based on financial metrics that are important to the investor.
  2. We believe that the above table is a good reflection of what most models would come up with, no matter how sophisticated they are. Of course, we don't claim that the above table is a good reflection for all names, but as a whole it is.
  3. In this article, we've assigned an equal-weighting for each category. In real life, we have more metrics and different weightings. Nonetheless, with the exception of FMC, our model is fairly in-line with the above results (+/- 2 rankings deviation per name).
  4. Naturally, different investors find different metrics to be of importance. As such, one can play with the data by adding/omitting categories and/or increasing/reducing the weightings.

Remember that up above we've shown how the combined Quant and Wall St. ranking looks like? We also promised that we would get back to it, so here goes.

Here are all the rankings, including ours, in one table:

Symbol Q+WS Wall St. Q+WS Our Ranking Off Q+WS
NTR 2 5 1 1 0
BIOX 7 1 2 11 9
CF 5 6 3 4 1
MOS 3 9 4 2 2
ICL 1 12 5 3 2
AVD 11 2 6 6 0
CTVA 6 8 7 7 0
SMG 12 3 8 5 3
IPI 4 13 9 10 1
FMC 10 7 10 8 2
MBII 13 4 11 N/A N/A
SQM 8 10 12 12 0
AGFS 9 11 13 9 4

With the exception of BIOX, you can clearly see that our ranking is quite in line with the Q+WS ranking.

Back to MOS & ICL

The final ranking sees MOS ranked 2nd and ICL ranked 3rd, so the two are very close based on methodology we've used above.

However, if you look at the total number of points you see that the gap (13 points) is quite wide, suggesting that MOS is clearly a better pick right now.

Using the same financial metrics as above, we've arranged the data differently, so you can easily see why we claim this and how we back that statement.

  • PE Ratio: MOS' ratios are way lower than ICL across all periods.

ICL vs MOS PE ratio

  • PS Ratio: MOS' ratios are way lower than those of ICL across all periods.

ICL vs MOS PS ratio

  • EV to EBITDA: MOS' ratios are way lower than those of ICL across all periods.

ICL vs MOS EV to EBITDA ratio

  • EV to Revenues: MOS' ratios are way lower than those of ICL across all periods.

ICL vs MOS EV to Revenues ratio

  • Earnings Yield: MOS' percentages are way higher than those of ICL across all periods.

ICL Group vs Mosaic Earnings yield

Price Target Upside (Daily): A picture worth a thousand words.

ICL vs MOS price target upside

Technically Speaking

Two charts for each stock that emphasize the lead of MOS over ICL.

ICL:

1) The last time the stock traded at the current levels was Q3/2013. P/E ratio back then was ~9x-10x; today it's more than twice as high!

ICL price
Data by YCharts

2) It was very positive when the stock broke the green, down-trending, channel last year. A clear bullish sign that is still very much in play.

Nonetheless, ICL is now entering what we believe to be a strong resistance zone. We're not saying that the stock can't cross this zone safely, but we do think it's a hell of a barrier.

ICL Group stock

MOS:

1) Unlike ICL that broke the down-trending channel last year, MOS has finally breached a decade-long resistance line earlier this year.

Putting it differently, MOS might have more (technical) fuel in the tank to keep this break-up going.

MOS resistance

2) This below chart is simply showing you that the 200-DMA is apparently functioning as a support level over recent months.

If so, the downside risk of MOS is only about 8% from here.

MOS price and moving average

Having that (8% downside risk) in mind, it's easier to understand how we trade MOS recently.

Our MOS (and NTR) Playbook/Tradebook

Unlike ICL, we haven't yet bought MOS straight.

Instead, we're allowing the stock in using options.

By selling ITM or slightly OTM PUTs, we are positioning ourselves to either buy the stock at a significantly lower price (compared to the market price), if the options get assigned, or for a nice return, if the options don't get assigned.

PUT option sold Sale Date Sale Price Net Price*
MOS 01/20/2023 40.00 P 11/05/2021 $8.69 $31.31
MOS 06/17/2022 37.00 P 11/03/2021 $4.70 $32.30
MOS 06/17/2022 37.00 P 11/05/2021 $5.05 $31.95
MOS 06/17/2022 40.00 P 11/03/2021 $5.80 $34.20
*If option/s get/s assigned Average price*: $32.44

Why do we use relatively long-duration expiry dates? Because you 'hit the iron' when it's hot, and in this case volatility is playing the role of the iron.

The implied volatility of MOS was fairly high in early November. The higher the volatility - the more sense it makes to sell longer-durations.

MOS price
Data by YCharts

Have no doubt: We don't rule out buying MOS straight, and/or selling PUTs with higher strikes, soon.

With the fast and furious way that food and fertilizer prices are performing over the past 18 months, there's no reason to believe that the relevant stocks won't keep marching higher.

Rising commodity prices and inflation to impact living expense in Q2 2021 - FXTRADING.com International

The only reason to be cautious here is actually Jay Powell.

As we explained earlier this week, Powell's second-term is likely to see him fighting against inflation more than he fought in favor of growth during his first term.

If that is the case, even a "Fertilizer Frenzy" may bump into a "Monetary Crazy"...

Fertilizer Extends Rally With Some Prices Soaring Nearly 60% - Bloomberg

Last but not least, you may want to ask how come we don't own NTR, the top-ranked of both Q+SW as well as our rankings?

Truth is, we lost the stock a couple of months back as covered CALLs that we sold (apparently too early and too low) were assigned on June 18th, seeing us selling the stock for a net price (strike + premium) of $54.40.

Since then, the stock hasn't stopped its run-up, and even when we thought that it's about to pull back in Q3 - that hope was short-lived.

Nutrien
Data by YCharts

We still very much wish to get back into NTR, but for the time being we are happy with our MOS and FMC that may have a greater upside potential.

At the end of the day, no matter which ranking one uses, that ranking is predominantly pointing to quality.

And while quality is a major/top factor, it's not the only factor. As a matter of fact, Mr. Market quite often lifts or sinks a stock regardless of quality and mostly (or even solely) based on other, sometimes unknown, "fertilizers".

NTR is the top-quality name within this industry, but if you scroll all the way up to the chart showing the total returns (since March 23, 2020) you'll find that NTR is only the 7th performer among the group that consist all 13 names that we started with.

Point is, quality is very important but it's no guarantee for outperformance.

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Disclosure: I/we have a beneficial long position in the shares of MOS, FMC either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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