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Savings Experiment: Snow RemovalThe Mosaic Company (NYSE: MOS), the combined Cargill Crop Nutrition and IMC Global Inc., began trading as a Fortune 500 company immediately after its 2004 IPO, and became a dominant player in the fertilizer business.
In just a few short years, Mosaic would be in prime position to ride a global boom in agricultural crop demand that resulted in its shares skyrocketing more than $130 from trough to peak.
From a valuation standpoint, the move higher was completely justified and rational -- up to a point. When the hedge fund momentum investors climbed aboard, astute investors knew that the rapid rise was due for a correction.
The stock sold off hard during the summer, which culminated in a complete washout due to the credit crisis and global economic meltdown. MOS shares fell back to the mid-$30s.
As is often the case, the selling went too far and had more to do with forced liquidations instead of rational valuation metrics.
Considering the stock offers a great price and growth opportunities in a mostly stable, defensive segment of the market, I thought MOS represented a great buy at current price. I made Mosaic one of my Top 10 Stocks for 2009 for that reason.
The company released earnings Monday after the close for the quarter ending Nov. 30, and the results make for an interesting mosaic themselves.
The company generated nearly a billion dollars of net income, or $2.15 per share, during the quarter. This compares to the 89 cents per share in the year-ago period. Revenues were up to nearly $3 billion, or 37% more than the $2.2 billion generated last year.
Of course, the news is backward looking. As expected the company is experiencing weakness in sales that is expected to impact earnings in 2009. Mosaic stated as much in the release, and, in response, the company is tightly managing inventory and limiting capital spending projects.
One analyst that follows the company reduced his estimate for the third quarter to 65 cents as a result of the news.
Big deal.
Let's assume that the company generates $2.60 for the next four quarters. Mosaic trades for a very reasonable 15 times earnings. These results are as bad as they are going to get if you ask me.
Food and biofuel demand will only increase from here. That means Mosaic will have a solid base of business for years to come. And you can buy that growth at a very reasonable price today.
I'd do it before the momentum crowd returns.
Jamie Dlugosch is a contributor to InvestorPlace.com.
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