Is fertilizer a Value Investment at Mosaic?

The Mosaic Company (NYSE: MOS) has some value characteristics. For example, Mosaic mines the ingredients for one of the most boring projects imaginable; fertilizer. In addition, Mosaic (NYSE: MOS) is cheap now. Mr. Market priced Mosaic shares at $9.90 on 27 March 2020.

Mosaic is the world’s largest miner and market of concentrated phosphates and potash. Potash and phosphates are the basic ingredients in many fertilizers. In detail, Mosaic mined 7.6 million tons of potash or 13% of the world’s potash production? Plus, Mosaic claims it can produce 11.7 million tons of phosphate a year in North America and 10.5 million tons of concentrated phosphates  a year in Brazil.

The value case for Mosaic is simple, people always need to eat, and farmers always need fertilizer to grow crops. Hence, there will always be a market for Mosaic’s products.

Is Mosaic Making Money?

Unfortunately, Mosaic makes little money from its business. For instance, Mosaic reported a $80.70 million quarterly gross profit on 31 December 2019. In contrast, Mosaic reported a $466.20 million quarterly gross profit a year earlier.

Frighteningly, Mosaic reported a -$1.195 billion quarterly operating loss on 31 December 2019. That translated into a -$921 million quarterly common net loss on the same day. However, Mosaic reported $2.076 billion in quarterly revenues on 31 December 2019.

In contrast, Mosaic reported a quarterly operating cash flow of $277.60 on 31 December 2019. However, Mosaic reported a -$346 million investing cash flow, a -$65.9 million financing cash flow, and a -$126.3 million cash flow on the same day.

What Value Does Mosaic Have?

 Despite the losses and negative numbers, Mosaic has some value. For instance, Mosaic reported $19.299 billion in total assets and $519.10 million in cash and short-term investments on 31 December 2019.

However, Mosaic reported total liabilities of $9.930 billion on 31 December 2019. Thus, Mosaic can make some money but it has trouble growing.

For instance, Mosaic’s revenue growth shrank by 17.62% in the quarter ending on 31 December 2019. I guess, Mosaic’s’ revenue growth shrank because of President Trump’s trade war. To explain, the major targets in Trump’s trade war include big fertilizer markets such as China, Europe, and Mexico.

What Future Does Mosaic Have?

I think Mosaic has a bright future because of world population growth. For instance, Pew Research estimates the world population will grow from around 7.8 billion in 2019 to 10.9 billion in 2100.

Hence, there will be more mouths to feed and more demand for fertilizer. However, Pew expects populations in Europe and Latin America will fall by 2100. For instance, Pew expects Europe’s population to peak at 748 million in 2021.

However, Pew predicts that Asia’s population will grow from 4.6 billion 2020 to 5.3 billion in 2055. Importantly, the International Monetary Fund (IMF) calls Asia the world’s fastest growing economic region with a growth rate of 5% in 2019.

Mosaic’s Growing market

Thus, populations are growing in the regions with the fastest growing economics. China, for instance, accounts for 39.2% of the world’s economic growth, the IMF estimates. Additionally, India accounts for 16.2% of the world’s economic growth.

Specifically, the IMF estimates China’s economic growth rate for 2020 at 5.8% and India’s 2020 growth rate at 7%. Hence, the growing populations in India and China will have more money to buy more food.

Hence, there will be a growing market for Mosaic’s fertilizers. Thus, I think Mosaic is a stock speculators need to look at.

Is Mosaic a Good Stock?

I think Mosaic (NYSE: MOS) is a decent stock with a bigger margin of safety than you might think. To explain, Mosaic paid a 5₵ quarterly dividend on 4 March 2020.

Overall, each Mosaic share offered a 1.84% dividend yield, a 20₵ annualized payout, and a 46.22% payout ratio on 20 March 2020. However, Dividend.com credited Mosaic with one year of dividend growth on the same day.

Thus, Mosaic is a good stock for its price. However, Mosaic is not a stock for the faint of heart. To explain, Mosaic’s operating losses show a company at risk, but Mosaic is a company which manufactures a product we need. Moreover, I consider Mosaic coronavirus proof because it makes products the world will need regardless of whatever happens with COVID-19.

If you want to take a risk on a cheap dividend stock with value characteristics. The Mosaic Company (NYSE: MOS) is worth examining. I think this company could have a bright future despite its problems.