Best Stocks for 2018: MOS is Poised to Benefit from a Rebound in Agriculture
December 20, 2017
I enjoyed taking part in the Best Stocks for 2016 contest two years ago, and I’m thrilled to be back joining the game this year.
It’s no secret that the market has had a great year. Volatility has been low, the economy has been growing and the indices have been hitting new highs on a regular basis. It’s been an incredible run, but I don’t think the strength will come to an end at the New Year’s bell. In fact, I think stocks will keep on running.
Still, we’ve seen a lot of rotation recently, and I don’t want my pick in this year’s contest to get caught up in any of that. That’s why I’m setting my sights on an industry that appears to be making a comeback.
Mosaic (MOS) is the world’s leading producer of concentrated phosphate and potash. In simpler words, it is a crop nutrition company whose goal is to help the world’s increasing population grow the food it needs. In fact, MOS is recognized as an innovator in its field.
Bringing Back the Farms
When we think of agriculture and farming, many remember the horror stories of foreclosures that brought on a slew of Hollywood movies and Willie Nelson’s Farm Aid concerts. There’s no doubt that farming has become unpopular and increasingly more difficult for small operators, but that doesn’t mean it won’t always play an integral role in our economy and politics.
Think of it this way. We still eat. We still wear clothes, smoke and fish. And we also still love sending and receiving flowers. This industry isn’t going anywhere, and it may even be making a comeback. Deere & Company’s (DE) latest financial release on November 24 revealed great strength in agriculture, suggesting that a big turn in the fortunes of the farm economy has begun. Since peaking back in 2014, it looks like 2018 may be a turnaround year.
Back in 2015, farms added $137 billion to U.S. GDP while agriculture as a whole added $992 billion. While pricing has remained mostly sideways since then, farm equity and wealth have edged higher and debt is at manageable levels.
I suspect a lot of this is driven by demand for farm-to-table and organic groceries, and that trend should continue to drive pricing power in 2018. The world’s population is only growing and America continues to take on a larger percentage to feed. In fact, Chinese demand for soybeans resulted in $40.4 billion in sales in 2017.
With the global economy on fire, that means higher demand for protein and the nutrients needed in the agriculture space. And Mosaic is a standout here. While the shares have tumbled 56% over the last five years, they have made an impressive 27% rebound since September and are now nearing a point where they could break out from their long-term down channel.
There is some resistance at $30, but a breakout fueled by improving underlying fundamentals could carry this stock to $45 and beyond. I see it not only as a winner in its space, but as an overall star in 2018.