After a post earnings run up that tested the $85 area, Mosaic Co. (MOS) has pulled back to a strong level of support. News last week that Cargill was selling its stake in Mosaic hit the stock hard, resulting in a 15 percent slide in only two days.
The reaction seems to be a bit overdone in our opinion. Also, there are rumors beginning to swirl that this makes the company a potential takeover target.
Regardless
of what happens, this does not change the strong underlying fundamental
earnings strength that the company possesses. Ultimately, we expect dip
buyers to step in and bid up agriculture stocks after the recent sector
pullback.
If this plays out, Mosaic will likely outperform in the short-term as shares are seen as cheaper than industry counterparts.
The setup here is a cheap March OTM 85/80 bull call spread, which we entered into for $1.40. This gives upside room of $3.60 per leg. To realize full profit potential at March expiration, the stock will need to be trading at or above its levels prior to the Cargill news. With a daily average true range of nearly $3, 53 days will be more than enough to accommodate the upward price action.
Trade Idea:
BUY +3 VERTICAL MOS 100 MAR 11 80/85 CALL @1.40 LMT
Trade Details:
Type: Bull Call Spread
Expiration Month: March
Breakeven Level(s): $81.40
Maximum Gains: $1,083
Profit Taking Level: $700
Maximum Loss(es): -$417
Stop Loss:-$417
