An Insider Bought Shares of Mosaic Co (MOS). Should You Follow?

A Form 4 filed with the SEC has disclosed that Emery Koenig, a member of the Board of Directors at Mosaic Co (NYSE:MOS), purchased 2,000 shares of stock on April 3^rd at an average price of $58.22 per share. Koenig now directly owns 3,000 shares and so this is a large percentage increase in his holdings as well as an investment of over $100,000. The principles of diversification suggest that insiders should be reluctant to buy shares of their company and therefore increase their company-specific risk, so we think that insider purchase are a signal of at least some confidence in the business’s prospects rather than a casual decision. It turns out that studies show a small outperformance effect for stocks bought by an insider (read our analysis of studies on insider trading).

Mosaic is a $25 billion market cap manufacturer of fertilizer and other agricultural products including animal feed. Its most recent fiscal quarter ended in February (the third quarter of Mosaic’s fiscal year). In that quarter revenue was up a small amount compared to the same period in the previous fiscal year. While net income showed a significant increase, this was almost entirely due gains on foreign currency transactions as operating income actually grew only 1%. So currently Mosaic Co (NYSE:MOS)’s business is not particularly strong.

However, some commentators have argued that agriculture is a global growth industry due to higher food demand in coming years. Mosaic trades at only 13 times trailing earnings, which is about right for its current financial performance but would look quite cheap if the company managed to increase its earnings growth rate. We would note however that many other stocks tied to agriculture have trailing P/Es in the same range.

Billionaire Steve Cohen’s SAC Capital Advisors reported ownership of 2.2 million shares in Mosaic Co (NYSE:MOS) at the end of December, after having increased its stake during Q4 (see Cohen’s stock picks). Point State Capital, managed by Sean Cullinan and other former portfolio managers of Duquesne Capital, initiated a position of 1.1 million shares (find Point State’s favorite stocks).