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The Mosaic Company (MOS) Shaping Up For A Nice Run In A Hot Sector

 December 11, 2012 02:50 PM

(By Rich Bieglmeier) Specialty Chemicals made iStock's mature bull list in this week's sector performance review. Chemical stocks could outperform the overall market in the next few weeks if our interpretation of industry charts is correct.

The Mosaic Company (MOS) is a specialty chemicals company specializing in agricultural chemicals. They are one of the world's leading producers and marketers of concentrated phosphate and potash crop nutrients.  

According to Mosaic's website:

Phosphorus, one of three primary crop nutrients required for plant growth, is often referred to as "The Energizer" for its role in converting the sun's energy into food, fuel and fiber. Mosaic's phosphate products, most commonly referred to as diammonium phosphate (DAP) and monommonium phosphate (MAP), are a source of phosphorus and nitrogen and provide vital crop nutrition to the global agricultural community.

[Related -Why We Like International Business Machines Corp. (IBM), The Coca-Cola Company (KO) And Mosaic Co (MOS)]

Potash is a naturally occurring mineral created during the evaporation of ancient sea beds. Potash is also referred to as Muriate of Potash or Potassium Chloride and is the most widely used potassium fertilizer. Potassium is one of the three primary crop nutrients required for plant growth. Potassium serves as the "Regulator" of many essential processes within the plant.

MOS shareholders are going all Sammy Hagar singing, "I can't drive $55" as the price blows buy resistance at the speed limit for many highways.  As the price accelerates away from its 50-day average of $53.38, it's pulling the 12-day and 26-day moving average past the key technical trend-line. The move past $55 also completes one triangle pattern and moves the price up the right side of a bigger triangle; all of which are bullish indicators for Mosaic's price and could end by flirting with the 52-week high of $61.98.

[Related -Potash Corp./Saskatchewan (USA) (POT): Potash Options Look For Shares To Rebound]

MOS Technical Chart

According to Zacks.com, MOS is expected to post earnings of $5.04 in the year ahead. That's 11.5% growth and in line with the specialty chemicals company's forward P/E of 11.07.  In the last five-years, MOS has traded with an average P/E of 19.25. Using 2013's estimate of $5.04 and the average P/E of 19.25, Mosiac could flirt with $100 in the year ahead; especially if the world economy begins to perk up.

Compared to its biggest rival, Potash Corp. of Saskatchewan, Inc. (POT), Mosaic trades at a discount on a P/E basis and price-to-sales (P/S) basis, two of our favorite metrics. MOS trades with a trailing-twelve-month P/E of 13.11 while POT is 17.7% higher at 15.43.

Potash is valued at nearly exactly two times Mosaic on a P/S basis at 4.47 and 2.20, respectively. However, in iStock's view, POT does deserve a premium as their margins are 70% higher than Mosaic's.

Overall, with the sector hot according to our review, potentially a big, bullish triangle taking shape, and a reasonable valuation on a forward P/E versus earnings growth, aggressive investors might find Mosaic Company (MOS) a worthy candidate for new money.



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