Don't Hate on Phosphate
Putting together the Mosaic of Investment Opportunities
When assets are expensive… make assets.
If those assets double in value, sit back and watch the profits roll in…
That’s the set up for the latest addition to the Fundamental Value Equity Portfolio, namely Mosaic Co, MOS 0.00%↑
Key Points
Mosaic is a leading producer of potash and phosphate fertilizers. Over the past three years, potash has generated roughly half of the company’s total profits, with phosphates around 35%.
Mosaic is the world's largest phosphate producer. The company benefits from the vertical integration of its phosphate assets, as it mines its own phosphate and owns the chain all the way to distribution of its phosphate fertilizers.
Fertilizer prices have more than doubled over the past year, according to the Wall Street Journal.
Being vertically integrated provides a cost advantage in comparison to competitors. As prices are sky high, others have to go out and purchase in the open market.
Mosaic is firmly in the value lane. On paper, its solid with a P/E of 9.25, P/B 1.54, P/S 1.51 and EPS (TTM) of 4.67. All well below their industry peers.
The core tenants of this company fit well within the Fundamental Value portfolio thesis.
The Trade War Never Ended
The US and China are still very much in a trade war.
We can conservatively call this round 6 of 12, with plenty left in the tank on both sides and no knock out punch in sight.
China accounts for 25% of global phosphate exports and recently banned all phosphate fertilizer exports through June 2022.
As a US company, Mosaic benefits from growing global demand for fertilizers which is structurally imbalanced because of global supply chain dynamics.
This decreased global supply will continue to add upward pressure to global fertilizer prices.
Buying Back Shares and Increasing Dividends
A powerful 1-2 combo, Mosaic’s board approved a 50% dividend increase, targeting a $0.45/sh annual dividend (~1.1% annual yield) and has repurchased 0.96mn shares at an average price of $35.72 through 10/31.
We continue to be bullish on management valuing shareholders and it is our hope this current positive outlook does not cloud our future assessments of the company.
All this being said, even the most logical investment decisions are rooted in emotion, which is unavoidable in any process.
We appreciate the opportunity for those that have entrusted us with your investment funds and hope to contine the success we had in 2022.
If you like what I have to say, feel free to follow me on Twitter or LinkedIn.
Check out my website or some of my other work here.
Best,
Darin Tuttle, CFA
Founder & CIO
Tuttle Ventures, LLC
