When 284% Gains Aren't Enough

Never in all my investing days have I witnessed a stock sell off so hard on a 284% per-share earnings pop.

Then again, Mosaic (NYSE: MOS) did report a 12-fold earnings gain back in April, so I guess 284% is pretty puny.

Of course, we investors are a forward-looking bunch (on our best days, anyway), and future results count most to us. Mosaic's management must have said some seriously shocking stuff about its outlook to invite a 41% haircut yesterday, right?

Are there liquidity concerns here, such as those hammering General Growth Properties (NYSE: GGP) this week? Some bad currency bets, like the one that stung Sadia (NYSE: SDA)? Not at all. Mosaic is sitting on a net cash position, and its manageable debt load is being speedily whittled down. There's nothing wacky going on with currency derivatives.

The worst thing I heard yesterday is that the phosphate pipeline is better-supplied than it has been for some time. Specifically, U.S. producer stocks were recently 8% above their three-year average. Ooh, spooky!

Now, phosphate is an important thing to focus on, because Mosaic derived twice as much operating income from phosphates as from potash this quarter. The supply-and-demand balance for these fertilizers is different, which is why I personally prefer PotashCorp (NYSE: POT). Phosphate inventories have fattened up. So is Mosaic facing a massacre?

No. Just as Chesapeake Energy (NYSE: CHK) is tightening the reins in the natural gas sphere, Mosaic is cutting its phosphate production. This is a far more concentrated market than that of natural gas production, and I expect the move to provide meaningful support to prices within months.

Management pointed to past precedent in this regard. In 2006, there was a similar situation with potash inventories. Miners scaled back. Fast-forward to today, and supply is seriously stretched.

The sell-off yesterday was fierce, but to this Fool, the fundamentals didn't suggest there was anything to fear.

Related Foolishness:

• Is there something rotten in the state of fertilizer?
• I still believe there's fertile ground for gains here.
• PotashCorp appears to agree.