Starting a New Position

“Finding investments is easy, waiting is hard, waiting is the hardest part”

-Clay Baker



​​The Portfolio Performance

The portfolio is up 5.64% YTD



New Position in Mosaic Company (MOS)

By the time you read this I will have purchased 227 shares of MOS at $39.77 a share. This purchase represents a 1/3 stake in the position that I want to eventually hold.


The Mosaic Company produces and markets concentrated phosphate and potash crop nutrients in North America and internationally. The company operates through three segments: Phosphates, Potash, and Mosaic Fertilizantes. It owns and operates mines, which produce concentrated phosphate crop nutrients, such as diammonium phosphate, monoammonium phosphate, and ammoniated phosphate products; and phosphate-based animal feed ingredients primarily under the Biofos and Nexfos brand names, as well as produces a double sulfate of potash magnesia product under K-Mag brand name. The company also produces and sells potash for use in the manufacturing of mixed crop nutrients and animal feed ingredients, and for industrial use; and for use in the de-icing and as a water softener regenerant. In addition, it provides nitrogen-based crop nutrients and animal feed ingredients, and other ancillary services; and purchases and sells phosphates, potash, and nitrogen products. The company sells its products to wholesale distributors, retail chains, farmers, cooperatives, independent retailers, and national accounts.


Why MOS Now?

I am still predicting that inflation will not be as persistent as most analysts think. Most of what's driving inflation simply isn't sustainable and technology will replace many of the high cost inputs that are contributing to inflation. As technology usage increases and supply chains normalize, inflation will come down. In the mean time I think fertilizer prices will remain high. Unfortunately that means we'll continue to see prices rise at grocery stores and restaurants until this disruption in the market is corrected.


This investment will not be for everyone, especially if you're a farmer. You may even question my own judgement in wanting to profit from the current state of affairs. Everyone can make their own decisions about investments, my job in this blog is simply to point out investments that I believe can successfully deliver returns.


I'm predicting that fertilizer prices will remain high and possibly go higher, only to the benefit of Mosaic. A combination of U.S tariffs, and restrictions on fertilizer and fertilizer components imposed by China and Russia have made cheaper imported fertilizers almost unobtainable. Only about 15% of fertilizers now in the supply chain come from imports. Add to the stress the higher cost of natural gas, which is used to manufacture fertilizers and the dramatic increase in fertilizer prices starts to make sense. Simply put, we have high demand for agricultural products, low supply and higher input costs for manufacturing.


The federal government could reduce fertilizer costs by simply reducing or eliminating the tariffs currently in effect. Removing tariffs also might open up the Chinese market for U.S farmers who have been almost completely shut out of the worlds largest market for agricultural products. As a result of lobbying efforts in support of the tariffs, Mosaic currently operates a monopoly in the U.S fertilizer market. I don't think this will last forever, but given how slowly the Biden administration has moved on this issue, I think it will last long enough for our portfolio to generate some profits.

Mosaic currently operates a monopoly in the U.S fertilizer market

Valuation

Mosaic is profitable, trades at just 5 times forward earnings and only 1.29 times sales. Mosaic can be volatile as it trades with a Beta of 1.76, making it more volatile than the broad market at 1.0. Mosaic profit margins run about 16% on revenues of roughly $11 billion. Quarterly year-over-year revenue growth was 43.50% in the last report. While debt is high at $4.18 billion, the company appears to be managing their debt well. Powered by its strong earnings growth of 4,950% and other important driving factors, the stock has surged by over 77% over the past year. The company has demonstrated a pattern of positive earnings per share growth over the past two years. During the past fiscal year, the company earned $1.73 versus -$2.80 in the prior year. This year analysts expect an improvement in earnings of $5.19 versus $1.73. And for all of 2022 analysts expect earnings to rise to $6.89 while revenue growth should rise another 16%.


Using a discounted cash flow model I think Mosaic is undervalued by about 25% and could reach a fair value of $53-$54 over the next 12 months.


Standing Note to My Subscribers

I'm going to leave this note in place until I take action so that I will have clearly telegraphed what I'm planning to do. Within the portfolio I'm looking at selling the (GLD) gold position and the iShares Clean Energy Fund (ICLN). We have enough cash in the portfolio that I don't need to sell those positions yet, but neither one of them is doing what they are suppose to do for the portfolio. The ICLN was intended to provide global exposure to clean energy, where the CNRG is providing mostly US based exposure to clean energy. The CNRG is clearly proving to be the better stock to own. The GLD was added long ago as a hedge against all uncertainty. The stock market seems to be going through a change, where gold is not long considered the safe haven asset. Bitcoin might be replacing gold, bond market proxy stocks, or high quality/high dividend stocks may be taking over that role. I'm watching those positions carefully and thinking about where that money could be better deployed.



"Markets don't go to zero, Portfolio's do.

Buy quality, be patient...and look twice for motorcycles."

- Clay Baker

Stay Invested,

Clay Baker

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Keep Me Honest 2021

  1. The S&P 500 will achieve year-end earnings of $170-$175 (1-1-2021).

  2. We are likely to have a significant pull-back during the 1st quarter, about 5%-10% (1-1-2021).

  3. Stock picking will outperform algorithmic trading again as it did in 2020 (1-1-2021).

  4. S&P 500 will reach 5,000 by year-end.

Clay's Rules

Rule #1: Don't lose money

Rule #2: See Rule #1

Rule #3: Portfolios go to zero, markets don't, Stay Invested