Mosaic Company may be Undervalued

The Commodity Selloff has hurt The Mosaic Company (NYSE:MOS) worse than expected and the same goes for rival Postash Corp (NYSE:POT).  So at what point does Fear vs. Valuation become the breaking point for investors?

All the Agriculture stocks have been taking a beating lately, in the last month Mosaic shares have fallen 67%, Agrium Inc (AGU) down 62% and Potash Corp. down 58%.  Just last month Agrium's CEO picked up 20,000 shares of his company and Potash is still in demand, despite the hate for the sector:

Mosiac shares have traded between $163 and $23 and not everyone believes the AG stocks are terrible investments, at this point, they look like bargains.

Strategic International Securities Research (SISR) is upgraded Mosaic (NYSE:MOS) to Strong Buy from Sell with a $60 price tgt (from $33) this week.  SISR is reversing their Sell rating on the stock to adding it to their recommended list.

Firm notes they are looking for current quarterly earnings to come in at $2.18, and full year estimate of $10.63 on revenues of $16.2 Billion. They believe that there will be a period of readjustment for Mosaic with both price declines and output reduced. Mosaic and the industry however are very effective at holding prices up by reducing output. SISR expects this to be the pattern for the coming months and even year or so as the price of these commodities adjusts to the international condition of a worldwide slowdown. Their projections are that output will be reduced by about 10% with prices declining by 20% to 30% over the next year. Given that price have increased by more than 400% this decline is relative by comparison.

Firm feels that given a historical PE of 12 for the industry their target is rather conservative with consensus currently being at $11.26 for 2009.

Mosiac also has a wild card up its sleeve, Cargill Inc. may take advantage of a plunge in MOS shares this year to increase its majority stake.

Privately held Cargill agreed to freeze its stake in Mosaic at 64 percent four years ago when Mosaic was formed from the combination of IMC Global Inc. and Cargill's crop-nutrition business.

That standstill agreement ended Wednesday.

One look at the chart and you may think run away, but at these prices, how low can it go?

Disclaimer: Long positions in MOS.