Stock at Whole Foods Market (WFM) have drifted towards the $30 mark. WFM has a soft spot in my heart. When I was living in the USA, I bought all my meat from WFM and it tasted so good! Moreover, all my classmates thought I was a spendthrift which made me want to go there more. It was like the Apple luxury good effect. However, I went there because I personally do not want antibiotics and hormones in my meat, and also because the extra checks in organic food means there is better food safety.
This past year, WFM has started coming down in price. Organic food has become more mainstream and the traditional grocers such as Walmart or Target are offering it. Even in Singapore, the “layman” grocer NTUC offers organic vegetables. This has caused analysts to fear that WFM’s margins will deteriorate.
Peridot Capital has argued their thesis in several posts which I have linked to before. One part of their argument that I find unique is that same store sales have fallen because WFM has opened so many new stores that they are cannibalizing each other. That makes intuitive sense but same store sales at their new stores are increasing rapidly that I believe WFM is expanding the pie as well.
Peridot Capital WFM Thesis
Peridot Capital WFM 2015 Update
The Mosaic Co is a company that I have been following for a long time now.MOS is a fertilizer company with phosphate mines in Florida and potash mines in Canada. Fertilizer is an under followed commodity as most investors focus on oil, metals, and grains.
Mosaic is the world’s largest producer of phosphate. It is vertically integrated with it’s mines in Florida accounting for 10% of global production of phosphate rock.Another large producer of phosphate is the government of Morocco. The market price is set by non-integrated producers which benefits Mosaic as it’s integrated business means a lower cost of production than them.
Mosaic is also the 3rd largest producer of potash, trailing PotashCorp and Uralkali. The potash industry is run as an oligopoly which has set prices much higher than marginal costs of production. Uralkali has started to slowly break away from this cartel by offering lower prices. The lower prices mean that there are larger barriers of entry to new players due to the incredibly high capital costs for greenfield projects.
Most important to me is the argument that Jeremy Grantham makes on fertilizers. Phosphorus (phosphate) and potassium (potash) both cannot be made, cannot be substituted, are necessary to grow all life forms, and are mined and depleted. To further aggravate the situation, Former Soviet states and Canada have more than 70% of the potash while Morocco has 85% of all high-grade phosphates. Thus, there is a quasi-monopoly on these two fertilizers. Mosaic and PotashCorp are probably the only two easy-to-invest companies.
The general commodity decline over the past 2 years has led to Mosaic to decline along with the rest of the sector. Mosaic is rated 5 stars with a fair value estimate of $48 and a high uncertainty rating. This translates to a consider buy price of $28.88. I have established a position in MOS through a long stock and short put position.