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Why The Mosaic Company's Shares Rose 10.6% in February

By Reuben Gregg Brewer – Mar 8, 2016 at 6:07AM

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Mosaic sells fertilizer. That's not exciting, but it's still a commodity that can pop higher without any notice.

Image source: The Mosaic Company.

What: Fertilizer maker The Mosaic Company (MOS 0.85%) saw its stock move up nearly 11% last month. That's a welcome reprieve for investors who have suffered through a roughly 50% decline over the past year.

So what: The down-and-dirty of why Mosaic's shares suddenly moved higher after such a long and steady downdraft is pretty simple: Fertilizer prices, overall, started to rebound in February. Mosaic's core products phosphate and potash are, at their base, commodities. So it shouldn't be surprising that the shares moved up along with the prices of what it sells.

The thing you have to figure out is how sustainable this bounce really is. For example, Mosaic has been trimming production in both its potash and nitrogen divisions to adjust to the current supply/demand imbalance in the broader market. That's the same thing that competitors such as PotashCorp (POT) have been doing. In fact, Potash was so worried about the fertilizer markets it serves that it cut its dividend in late January at the same time it reported weak 2015 financial results.

So, seeing some pricing strength in the fertilizer space is nice. But it's probably too early to suggest that Mosaic and competitors, such as Potash, are at the doorstep of an industrywide upturn both in terms of price and supply and demand. And both are really needed for Mosaic's business to see sustainable improvement.

Now what: Mosaic is a good company and appears to be on solid footing. For example, unlike Potash, Mosaic didn't trim its dividend when it reported fourth-quarter earnings -- though you'll want to pay attention to see if it increases the disbursement again in March as it did last year. And Mosaic is serving an industry with strong long-term demand (we all have to eat, after all). So, yes, there's a lot to like about beaten-down Mosaic stock. But so far there's little evidence that the near-term problems facing the fertilizer markets Mosaic serves have suddenly changed for the better from a long-term perspective.

That said, if you like the long-term story, Mosaic could be an interesting investment option, since the shares are still so depressed. Just don't buy it because of a quick price advance driven by commodity volatility. If the winds shift there, you could end up very disappointed.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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