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.