In the wake of the shocking fertilizer facility explosion in Texas, it might be worth taking a look at some potash and phosphate focused fertilizer stocks like Mosaic Co (NYSE: MOS) and Potash Corp./Saskatchewan (NYSE: POT). As I mentioned in my previous article (The Best Nitrogen Fertilizer Stock? AGU, CF, UAN, RNF & TNH), CNBC has noted that the regulation of fertilizer “stuff” like ammonia is pretty tight, meaning the only new regulation nitrogen and fertilizer stocks in general might face would be rules not allowing new fertilizer facilities in heavily populated areas or near schools and nursing homes. Citigroup has also pointed out that the explosion might also keep new players out of the $10 billion fertilizer industry. However, fertilizer facility explosions have been the least of the worries for investors in Mosaic Co and Potash Corp.
What Are Mosaic Co and Potash Corp?
Mosaic Co mines phosphate rock from nearly 200,000 acres of company-owned land in Central Florida and mines potash from five mines in North America, primarily in Saskatchewan. Specifically, Mosaic Co is a leader in the potash industry with annual capacity of 10.3 million tonnes and its the world’s largest producer of finished phosphate products with an annual phosphate capacity greater than the next two largest producers combined.
Meanwhile, Potash Corp is the world’s largest fertilizer company by capacity and produces three primary crop nutrients: potash, phosphate and nitrogen. Potash Corp is the responsible for approximately 20% of the global phosphate capacity through its Canadian operations and it has investments in other key global potash-related businesses in South America, the Middle East and Asia.
It should also be mentioned that Mosaic Co gets around 70% revenue from phosphate and the rest from potash while Potash Corp gets around 70% of its revenues from both potash and phosphate with the rest coming from nitrogen – whose prices have firmed up in recent years.
Mosaic Co and Potash Corp: Better Times Ahead?
Investors should be aware that back in January, a deal was finally reached to settle 2008 lawsuits of potash price fixing between Mosaic Co, Potash Corp and Agrium Inc. (NYSE: AGU) who control a marketing group called Canpotex along with major Russian and Belarussian potash producers (which settled claims back in September). The lawsuits alleged that these companies which hold 70% of the global potash market, had co-ordinated production cuts in order to inflate prices for US buyers. Under the deal, Mosaic Co and Potash Corp settled for $43.75-million, each.
After the deal was announced, Potash Corp’s CEO issued a blunt statement saying: “This is simply a wasteful and unnecessary cost of doing business in the United States.” It should also be noted that the lawsuits were filed in 2008 when potash prices were at the top of a five-year run and they have since slid to about half that level. Nevertheless, getting the lawsuits settled does unload a headache for both Mosaic Co and Potash Corp.
It should also be noted that potash supplies were piling up last year because important customers in China and India had delayed signing new supply contracts. However, potash exports by the North American producers surged by 59% sequentially in March to 1.286 million tonnes while domestic sales mainly to the US fell 13% to 668,000 tonnes.
Mosaic Co also beat expectations the last time it reported earnings thanks to potash sales coming in at the high end of the company’s forecast due to Asian demand. However, Potash Corp’s year end earnings report did not live up to expectations as fourth-quarter results were impacted by a weaker performance in all three divisions due to limited significant immediate needs and a lack of direction in the market. Nevertheless, Potash Corp’s CEO believed the challenges were temporary and the company was leveraging is product mix to position for an expected rebound this year.
Stock Performance: Mosaic Co and Potash Corp
On Thursday, Mosaic Co fell 1.02% to $57.39 (MOS has a 52 week trading range of $44.43 to $63.46 a share) for a market cap of $24.43 billion while rose 0.60% to $38.25 (POT has a 52 week trading range of $36.73 to $46.16 a share for a market cap of $33.09 billion. Over the long term, Mosaic Co is up 1.3% since the start of the year, up 14.2% over the past year and down 57.6% over the past five years while Potash Corp is down 6% since the start of the year, down 10.7% over the past year and down 43.9% over the past five years:
Traders and investors who like looking at and analyzing technical charts should take a look at the following technical charts for both stocks:
Finally, it should be mentioned that Mosaic Co has a trailing P/E of 12.83, no forward P/E and a forward dividend of $1 for a dividend yield of 1.7% while Potash Corp has a trailing P/E of 16.14, a forward P/E of 11.45 and a forward dividend of $1.12 for a dividend yield of 2.8%.
The Bottom Line. Personally, I am more impressed by the performance of nitrogen fertilizer stocks over potash and phosphate stocks like Mosaic Co and Potash Corp, but the latter could still have a good year for investors.