Mosaic Co. (NYSE: MOS) seems to stay true to its name. After careful research, the company truly appears to be a combination of many diverse opportunities: it is in the phosphates segment, where it operates mines and concentrates plants; the potash segment, where it operates mines and processes potash; the offshore segment, which consists of fertilizer blending and bagging facilities, port terminals and warehouses in Brazil, China, and Argentina; and the nitrogen segment, which focuses on the distribution and marketing of nitrogen products. Just earlier this week, none other than Mr. Cramer, even pinned MOS as a uranium play. His reasoning is that it has now become profitable to extract uranium from phosphate (Mosaic's primary focus), and most investors have not factored in the uranium angle into the price of the stock. I don't know if the likes of Citadel, Millenium, SAC, and Soros are invested in it for its uranium potential, I certainly hope that their investment in MOS was meant as a way to play the agriculture sector.
The company ended the year 2006 with US$5.3 billion in sales, US$718 million in EBITDA, US$0.22 of EPS and as of latest filing 3Q'07 (fiscal year end is in May), MOS had more than US$460 million in cash. Its multiples can be a bit confusing: EV/Sales of 3.0x, and EV/EBITDA of 22.0x for 2006, while most of their competitors trade in a range of 7.0x to 12.0x EV/EBITDA. At the same time, EPS growth estimates for 2007 and 2008 run close to 200%.
The catalyst I believe lies on the global under-estimation of the increasing significance of agriculture. In the U.S. we are starting to see the beginning, with the spotlight now shinning on corn/ethanol. The company argues that increased acreage due to an increase in demand for grains and oilseeds, will also mean higher fertilization application; higher prices will encourage farmers to use more fertilizer in order to maximize their yield. Eventually, this strong agricultural demand will be felt beyond our borders; for example in places like Brazil. Of course, MOS is already positioned there by owning a stake in the number one fertilizer player in the region. In short, Mosaic is an industry leader, in a segment that is about to undergo some fundamental changes. They are well positioned to take advantage of the shift in North America, and their ownership of assets in Asia and Latin America shows that management understands where the growth is.
Some investors will follow the "uranium" bidding, others will hopefully take the time to look at how strong the company is in the four segments it operates in. Although the company posted a disappointing 3Q, much has happened in the last couple of months, and I strongly believe most of the upside has not been fully reflected.
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