The Iconoclast Investor

Every time a bunch of investors think they’re smart, the market teaches them a lesson.  Fertilizer stocks are the example du jour.

Last night, Mosaic (MOS), which is a huge seller of phosphates and potash (more phosphates than potash), released earnings … and they weren’t good.  Earnings came in at $2.65 a share, way up from a year ago, but a full 29 cents below estimates.  Moreover, management indicated that phosphate prices have begun to flatten out, so much so that the company is cutting production going forward.

Now, before the announcement, the stock was already down a whopping 58% just since mid-June.  Because of the rapid drop, the stock was trading at a ridiculously low forward P/E of 4.4.  (Earnings for the year ending next May were estimated to hit $14 a share.)  And that tempted many people to buy.

But always remember:  The market works in its own way, and that way isn’t necessarily how you or anyone else thinks it should work.  When big winning stocks top out, especially in the midst of a bear market, they fall fast and hard.  And the bad news doesn’t come out until much later and at lower prices … in this case, 58% lower.

Today, Mosaic’s stock is down more than 30%, and the biggest leader of the group, Potash (POT), is down more than 20%.  It pays not to argue with the market.

(See my July 27 article, Forget the Cheese)