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10 Top Morningstar M&A Stock Picks for 2012

Mosaic

Agricultural and fertilizer giant Mosaic (MOS - Get Report) is Morningstar's largest takeover investment idea, with a market cap at over $22 billion. In 2011 Cargill, a private fertilizer conglomerate and commodity trader, shed its 64% stake in Mosaic, which Morningstar sees as a positive for a takeover attempt by a mining player like Australia's BHP Billiton (BHP).

"We think BHP Billiton is a possible suitor, given its well-documented bid for Potash Corporation of Saskatchewan, which was ultimately unsuccessful," writes Morningstar. Mining giants may look to buy Mosaic's phosphate and potash mining businesses in favor of developing greenfield projects. BHP's closest competitors are Rio Tinto (RTP) and Vale (VALE) and Potash (POT).

With mines in Saskatchewan, New Mexio and Michigan, Mosaic is the world's number one producer of phosphate with a 13% share of global production and it's the second largest North American producer of potash. Because of its Minnesota-based headquarters, Morningstar argues that Mosaic may be a more suitable target than Canada-based Potash, which had previous takeover bids quashed by the government.

Morningstar gives Mosaic shares a four star rating and fair value of $69 a share, an over 25% premium to current share prices of $54.93. Mosaic reported earnings of $1.40 a share on Jan. 4 beating a $1.28 a share consensus estimate compiled by Zacks. Analysts give Mosaic an estimated price target of $64.72 a share on 2012 revenue of $11.5 billion and profit of $2.3 billion, according to data compiled by Bloomberg. For more on Mosaic shares, see 7 fertilizer stocks that hedge funds love and Daniel Loeb's Third Point portfolio.

Within the basic materials space, Morningstar also highlights Cloud Peak Energy (CLD) as a takeover candidate after Rio Tinto divested its blocking position in the low-cost coal producer that has operations in the Powder River Basin. Other takeover candidates are Global Power (GLPW), First Quantum Minerals (FM) and Aptar Group (ATR).

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