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Stock Strategist

Compass Minerals Is Worth Its Salt

Its wide moat and low-beta end markets should support the shares in a downturn.

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 Compass Minerals (CMP) currently trades just below our fair value estimate, but opportunities could arise with a mild winter. For now, the shares offer a place of refuge in a materials sector that we expect to remain under pressure as China's investment-led growth model falters. They also offer a nice dividend yield of roughly 3%.

Durable cost advantages in salt and specialty fertilizers afford Compass Minerals a wide Morningstar Economic Moat Rating, a rarity in the commodified basic materials sector. Not only does the firm control world-class geologic assets, but those assets are also close to key markets--a prerequisite for outsize returns in salt, a very regional market because of its low value/weight ratio. In fertilizer, Compass controls one of three salt brines in the world that currently produce sulfate of potash, a specialty fertilizer used on high-value crops. More important, the firm's brine-based production method is low-cost.

Jeffrey Stafford does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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