Money
& Investing 
Turning Corn into Dough Is the Goal for Mosaic, Potash and Agrium Inc.
You might say this is a corny story, but there is a lesson.
Many times in the stock market, fundamental news can be the key to finding a great stock. It could be the development of a new product, a new service or an economic shift favoring certain industries.
However, two other ingredients often make the market even sweeter: (1) a pinch of good technical stock action and (2) a dab of strong profits in the mix.
Take the case of two of the largest fertilizer stocks: Mosaic Co. (MOS), based in Minnetonka, MN, and Potash Corp. of Saskatchewan (POT), based in Canada.
The theme at work here is that there was a poor corn crop last year. Analysts are now predicting that, this year, there will be a move to increase the corn crop in the U.S., and that should mean strong demand for fertilizer.
In the U.S., corn cultivators are the greatest users of agricultural chemicals.
Analysts say that, for the 12 months that ended June 30, 2006, domestic fertilizer use dropped approximately 10 percent. They say that was the result of reduced application rates and an approximately 3 percent decline in planted corn acres.
This season, ending June 30, 2007, analysts predict an 8 percent increase in corn acres. That should translate into more demand for fertilizer.
That plays right into the strength of both Mosaic and Potash. Mosaic is a big producer of phosphate-based fertilizer used for corn crops. The company was formedin late 2004 by the merger of IMC Global and Cargill’s former crop nutrition unit. Mosaic has annual sales of 5.3 billion dollars.
Potash, with annual production capacity of 12.5 million tons of potash, accounts for 20 percent of the world’s capacity. The firm’s annual sales are 3.8 billion dollars.
Technically, Mosaic’s stock broke out from a 10-week flat base in mid-February, getting to 24 (see chart). The basing pattern was set up after the stock ran up from 15 last August to a peak of 23 in December. The base was bracketed between roughly 23 and 20.
Potash
Mosaic
When buying a stock, you are wise to time the purchasefor when it is emerging from a base, or from a sideways pattern preceded by an up trend. The basic assumption is that the stock is now resuming its up trend when its prices break out to the upside and, then, will follow through.
For the fiscal year ending May 30, Mosaic’s earnings should soar 146 percent to 76 cents a share from 31 cents a year ago. That gives the stock a price-earnings ratio of 31, based on fiscal 2007 net. That is low, given the projected growth rate. For fiscal 2008, earnings should climb 79 percent to 1.37 a share.
Potash’s stock has done superbly. It surged from 80 last July to a peak of 140 by November. It then set up a ten-week flat base. In early February, Potash’s stock broke out from the base to the upside. That was a very good bullish technical buy signal. The stock has since climbed to 159.
This year, Potash’s earnings should climb 33 percent to 7.72 a share from 5.80 in 2006. The stock sells with only a 19 price-earnings ratio. That is well below this year’s projected earnings growth rate. Thus, to some value-growth investors, it can be attractive.
Another player in the fertilizer market is Agrium Inc. (AGU), based in Calgary. It has annual sales of 4.2 billion dollars, and it produces nitrogen, phosphates and potash. It also has retail stores in North and South America.
AGU’s stock is thriving, too. Since June of last year, it has climbed from 20 to 38 and remains in a strong up trend. Earnings this year should soar 163 percent to 2.52 a share from 96 cents a year ago. It sells with just a 15 price-earnings ratio based on this year’s projected net.
eSignal subscribers should always keep in mind the one-two-three punch when searching for bullish stock plays: First, look for a bullish theme; second, look for a strong stock price action; third, look for a powerful earnings outlook.
Mr. Fasciocco’s articles appear at www.tickertapedigest.com. He is a contributing writer for several national publications. He is also president of Corona Investment Management.
To get a free trial subscription to the Ticker Tape Digest Pro Report which comes out daily with a video show, email leo2@tickertapedigest.com. Mr. Fasciocco can be reached at leo2@tickertapedigest.com
