uploads///How Fertilizer Stocks Have Performed Against ETF XLB

Was Morgan Stanley’s Call on Mosaic Already Priced In?

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Dec. 4 2020, Updated 10:53 a.m. ET

Muted response

Earlier in this series, we saw why Morgan Stanley downgraded Mosaic (MOS) on March 16. On the same day, Mosaic closed 2% up at $29.1 above its previous day’s close. YTD (year-to-date), the company was still trading in positive territory. It returned 2.5%—compared to the S&P 500’s return of -1.7%.

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Was it priced in?

Usually, when analysts downgrade a stock it’s expected that the stock move in the same direction. However, the muted response doesn’t mean that investors ignored the downgrade.

With the 4Q15 earnings season over, investors appear to have adjusted their portfolios based on their expectations on fertilizer prices as we move into 2016. The current situation is an example. The prices of phosphates and potash have been significantly lower year-over-year. This concerned investors. You can see this in the above chart. It appears that investors already priced in limited upside for Mosaic well before the downgrade.

How bad is it?

To put it into perspective, the prices of DAP at US Gulf NOLA (New Orleans) for the week ending March 11, were trading at $340 per short ton—down by as much as 22% compared to a year ago. The prices for MAP at Brazil were trading at $399 per short ton—down ~25% compared to the same period a year ago.

How’s the industry tackling this issue?

Amid these price meltdowns, fertilizer producers are either curtailing their productions or suspending their operations altogether. For example, Mosaic announced the curtailment of phosphate production earlier in February. To learn more, read Why Mosaic Is Curtailing Its Phosphate Production. Potash Corporation (POT) even suspended its potash operations in New Brunswick. The cost of production at this facility was the most expensive for the company. Intrepid Potash (IPI) had a dismal 4Q15. Technically, it’s in default because of falling prices.

You could look into the Materials Select Sector SPDR ETF (XLB). It invests 2.1% in Mosaic and 7.8% in Monsanto (MON).

Given the weak outlook, let’s see what Wall Street analysts recommend for Mosaic over the next 12 months.

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