Why the Price Fixing Case Against Fertilizer Makers Isn’t a Reason to Avoid the Stocks

With crop prices soaring, fertilizer stocks like Mosaic (MOS), Potash (POT) and Agrium (AGU) are suddenly getting a lot of attention. Another good reason to take a look at them: they're accused of price-fixing.

Those big three, along with four other companies from Russia and Belarus, were in court last month, defending themselves. In June a federal appeals court in Chicago revived a lawsuit that accused them of fixing the prices of potash, used in fertilizer.

The price of potash has irked buyers for years. A similar suit was dismissed in the 1990s. Prices rose 600% from 2003 to 2008, when purchasers sued again. Earlier this year, high potash prices kept some farmers from buying, says Reuters.

But price-fixing is a lot like off-label drug marketing a la GlaxoSmithKline (GSK) or bribing foreign officials a la Wal-Mart (WMT): a cynic might say that the benefits of breaking rules -- still just an allegation in the potash matter -- often outweigh the costs. A National Post story quotes an analyst who says damages could reach $6.5 billion, but the case will drag on for years and will be hard for the plaintiffs to win. That the case exists at all suggests the potash pushers are price maximizers, which, from a shareholder's point of view, ain't a bad thing.

In the meantime, they’re bumping along…

MOS Net Income TTM Chart

MOS Net Income TTM data by YCharts

And looking pretty beaten-down when grain prices are soaring.

MOS PE Ratio Chart

MOS PE Ratio data by YCharts

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