Mosaic Co (MOS), Potash Corp./Saskatchewan (USA) (POT): This Potash Producer Is Ripe for a Breakout!

Investment case

Mosaic trades at 12.5 times trailing earnings, while Potash Corp./Saskatchewan (USA) (NYSE:POT) trades for 16 times earnings and Intrepid Potash for 17 times earnings. Although the latter two companies earn higher margins than Mosaic, their premium valuations relative to Mosaic’s is somewhat puzzling.

Despite a rough first-half of the last decade, Mosaic Co (NYSE:MOS)’s earnings have remained relatively stable over the last five years — at least as stable as a company in a commodity industry can be. Meanwhile, Intrepid Potash and Potash Corp./Saskatchewan (USA) (NYSE:POT) have had volatile earnings in comparison.

Many academics like to describe the risk of a stock as the volatility of its stock price, but a better gauge of risk is earnings volatility. A company that has more predictable earnings than another company is inherently safer, all else equal, because those earnings are less likely to evaporate overnight. Therefore, recent years suggest that Mosaic Co (NYSE:MOS) may actually be a safer investment than its higher-margin peers.

Of course, the future is unpredictable and recent years may not be indicative of future years. However, at 12.5 times earnings and a large discount to its peers, Mosaic is the most attractive investment of the three.

Ted Cooper has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article This Potash Producer Is Ripe for a Breakout! originally appeared on Fool.com.

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