A Sneaky Way To Play The Inflation Game

If you haven’t noticed by now, inflation is here. 

Gas prices are rising, food prices are rising, and mortgage rates are going higher. 

Owning stocks that are tied to hard assets is one way to hedge against inflation.  

And when it comes to agricultural stocks, few are doing it better than Mosaic (MOS) right now.

The war in Ukraine saddled Russia with massive sanctions.

While most folks know it for its energy exports, it’s also one of the world’s largest exporters of fertilizer.

So, like everything else cut off from Russia, prices for fertilizer have shot through the roof.

And so has interest.

Beyond being our top agricultural input stock, you can see below how pageviews amongst both retail and financial pros grew since the invasion in late February.

So is it worth an investment?

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Mosaic Business

Mosaic (MOS) is one of the world’s leading crop nutrition companies with a focus on potash and phosphate, two of the three most vital nutrients. 

MOS operates its business through three segments: Phosphates, Potash, and Mosaic Fertilizantes. 

Furthermore, it owns and operates mines, which produce concentrated phosphate crop nutrients. MOS sells potash for use in the manufacturing of mixed crop nutrients and animal feed ingredients.  

While its potash business remains steady, MOS has seen impressive growth in its phosphate and fertilizantes business.

Financials

Revenues soared in the last 12 months as inflation pushed prices higher. And that was before the invasion of Ukraine.

Full year revenues were up 42% from the previous year, thanks to stronger pricing, which saw gross margin increase from 12.3% to 25.9% in just one year. 

The firm recorded a record EBITDA in 2021 with net income at its highest levels in nearly a decade.

MOS has a current ratio of 1.11. That means its assets are 1.11 times greater than its short-term liabilities. 

Moreover, MOS has a debt-to-equity ratio of .33. That means for every $0.33 of debt, TWTR has $1 in equity. 

Valuation

When you dig around and investigate the players in the space, you’ll soon find out that few do it better than MOS. 

For example, MOS has a P/E of 15.69, a number well below the S&P 500 average, and considerably lower than SQM 43.9, CF 24, and FMC 21.22.

And the forward P/E ratio of 6.66x is just outstanding, only matched by CF Industries (CF)

MOS runs a profitable shop. Some of the more impressive stats include the firm’s EBIT Margin is 21.62% and cash from operations, which stands at $2.19B.

And while some may dismiss MOS as a growth stock, they should reconsider. 

Why?

Well, revenues grew by more than 42% last year. EBIT growth increased by 432%, and ROE growth spiked 129% from the previous year. 

It’s also worth noting that MOS is looking out for investors. The firm raised its annual dividend by 50%. 

Our Opinion – 7/10

MOS has seen a surge in its fertilizer and potash business of late. We believe that trend will continue. However, MOS is right near 52-week highs, and shares are up more than 70% YTD. 

Patience will be key with this stock. And while it might be trading like a momentum stock at the moment, we believe things will cool off. If they do, it might be worth looking into for a possible entry especially considering it was the number one search in our data with growing interest.