The Mosaic Company (MOS Quick QuoteMOS - Free Report) is gaining from demand strength for phosphate and potash and actions to improve its cost structure. However, it faces headwinds from weak fertilizer prices.

The company’s shares are down 23.7% over a year, compared with a 32% decline recorded by its industry.

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Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.

Healthy Demand, Cost Cuts Aid MOS

Mosaic is well-positioned to benefit from strong demand for phosphate and potash. Higher agricultural commodity prices and attractive farm economics are driving demand for fertilizers globally. Farmer economics remains attractive in most global growing regions on strong crop demand, affordable inputs, and favorable weather.

Demand for grains and oilseeds remains high along with strong farm economics. Strong agricultural commodity pricing trends and improved farmer affordability are likely to drive demand for fertilizers in the balance of 2023. Strong demand is expected to support the company’s sales volumes.

Mosaic is also taking actions to reduce costs amid a still-challenging operating environment. Its actions to improve its operating cost structure through transformation plans are expected to boost profitability.

The company also remains committed to carrying out investments with high returns with moderate capital expenditures, such as the expansion of MicroEssentials capacity at its Riverview facility, constructing a new blending and distribution center in Palmeirante, Brazil and executing the construction of a purified phosphoric acid plant for sale in North America. The company expects total capital expenditures to be $1.3-$1.4 billion for 2023 including roughly $500 million in growth investments.

Softer Prices to Hurt Margins

Weaker potash and phosphate prices may impact the company’s margins. Prices of phosphate and potash retreated since the back half of 2022 from their peak levels attained in the first half riding on the impacts of the Russia-Ukraine war and disruptions due to the sanctions in Belarus. Lower selling prices hurt sales and margins across the company’s Phosphate and Potash segments in the third quarter of 2023. Despite some recovery of late, weaker year-over-year fertilizer prices are expected to continue to weigh on the company’s profitability.

Stocks to Consider

Better-ranked stocks worth a look in the basic materials space include Denison Mines Corp. (DNN Quick QuoteDNN - Free Report) , Axalta Coating Systems Ltd. (AXTA Quick QuoteAXTA - Free Report) and The Andersons Inc. (ANDE Quick QuoteANDE - Free Report) .

Denison Mines has a projected earnings growth rate of 100% for the current year. DNN has a trailing four-quarter earnings surprise of roughly 225%, on average. The stock is up around 61% in a year. It currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, the Zacks Consensus Estimate for Axalta Coating Systems’ current-year earnings has been revised upward by 8.2%. AXTA, carrying a Zacks Rank #1, beat the Zacks Consensus Estimate in three of the last four quarters while missing in one quarter, with the average earnings surprise being 6.7%. The company’s shares have gained around 24% in the past year.

Andersons currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for ANDE's current-year earnings has been revised 5.1% upward over the past 60 days. Andersons beat the Zacks Consensus Estimate in three of the last four quarters while missed once. It delivered a trailing four-quarter earnings surprise of 32.8%, on average. ANDE shares have rallied roughly 52% in a year.