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Turn Rising Food
Prices into Profits with this Company |
Published:
May 12, 2008
Monsanto (NYSE: MON,
$119.71)
makes genetically modified (GM) seeds. GM seeds are designed to
exhibit certain desirable traits. For example, one of Monsanto's
most popular current products is Roundup Ready corn. Roundup is
MON's popular brand of weed-killing herbicide; Roundup can be
applied directly to Roundup-Ready corn without negatively
affecting the corn plant. Meanwhile, the Roundup will kill all
of the weeds in the cornfield, boosting corn yields per acre.
MON makes seeds designed to offer protection against diseases,
pests, weeds and environmental conditions for all sorts of
crops. Even better, MON is a leader in stacked traits -- seeds
designed to exhibit more than one beneficial trait. For example,
MON's triple-stacked corn protects against rootworm, corn borers
and offers Roundup resistance. By stacking multiple traits, MON
is able to significantly boost corn yields per acre; in
addition, some of these pest control traits reduce the need to
apply pesticides to crops.
MON's main competitive advantage lies in its GM technology. The
company has developed or purchased some of the most desirable GM
traits; those traits are proprietary, and as a result,
competitors can't copy MON's technology. MON is also a leader in
stacking -- by the end of 2010, MON will introduce its SmartStax
corn with a total of eight desirable traits. The launch will
take place at least two or three years before the company's main
rivals introduce similar products.
In addition, MON is developing some new, promising traits such
as drought resistance. Given water shortages across many key
crop-producing regions of the world, this promises to be a truly
blockbuster trait for MON.
As for growth, global agriculture markets have been on fire
recently, with the prices of wheat, soybeans, corn and other
basic food commodities surging to new multi-year highs. There
are two main drivers of this trend: rising consumption of
agricultural commodities in emerging markets and increased
consumption of crops for biofuels production. As consumers'
incomes rise in the developing world, meat consumption is
soaring, powering demand for basic crops like soybeans and corn
to use as feed. And new biofuels mandates in the U.S. and E.U.
are pushing demand for ethanol and biodiesel; this is also
boosting demand for agricultural commodities.
As a result, farmers are looking to maximize their yields per
acre to improve production and take advantage of higher prices
-- MON's products are one of the only ways to boost yields.
MON's triple-stacked corn continues to gain share in the U.S.,
and that trend should continue over the next few years, as few
competitors offer a competing triple-stacked product line. And
MON also has room to expand in other key agricultural markets
such as Brazil and China where GM seed penetration is lower than
in the U.S.
MON is a market leader in the GM seed business, and the firm is
at least two years ahead of its competitors with new stacked
products. As a result, MON should see growth topping
+37% over the next few years. Meanwhile, the company trades at
just under
30 times 2009 earnings estimates; it's rare to see a
market leader like MON trade at a discount to its long-term
growth rate.
-- Paul Tracy
Editor
StreetAuthority
Market Advisor
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