Why 2013 Could be a Big Year for This Stock
Neha is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
If your portfolio was a nursery, you’d love to fill it up with seeds of this plant. Those who tucked Monsanto (NYSE: MON) into their money pots at the beginning of 2012 must be watering nice gains of 28% today. Not surprising for a company that rules the global seed industry.
My advice is: Whether you like plants or not (though I can’t think why anyone would hate them!), consider having Monsanto in your portfolio, because this is one seed that will prosper as long as the world eats. And don’t waste time -- 2013 could turn out to be a super-exciting year for the stock.
If all goes well (read: Mother Nature remains calm), 2013 could be huge for the U.S. planting season. If the worst-ever drought this year meant low yields, it was also a blessing-in-disguise for Monsanto as it highlighted the urgent need for advanced seed and trait products that can withstand extreme weather conditions. Naturally, Monsanto is bound to be one of the biggest beneficiaries of it all.
But the U.S is not where my, or Monsanto’s, focus will be next year. Real growth could stem from Latin America, and Monsanto’s already charged up. To coincide with the nation’s peak planting season, Monsanto recently introduced triple-stack corn in Argentina while launching its first double-stack corn trait in Brazil. Both products are expected to boost gross profits per acre significantly. Though how farmers are responding to these products will be better known next year onwards, the launches ensure that Monsanto keeps up with rivals scrambling to capture the high-potential market.
The seed king’s pest-resistant soybean Intacta RR2 PRO is also ready for on-farm testing in Brazil next year. After successful trial runs, the product is nearly ready for commercial launch. It’s a huge opportunity. You don’t believe me? Consider this -- according to local agriculture-specialist consulting firm Celeres, genetically modified seeds made up a whopping 89% of Brazil’s just-planted soybean crop. Further, total Brazilian land sown with GMO seeds (including corn, soy, and cotton) is pegged to be 14% higher this planting season compared to last year.
Ready to attack
So Monsanto is armed to tackle competitors as they gain ground. Syngenta (NYSE: SYT) is one step ahead having already won approval from Argentina for its four-stack corn. It has even launched 70 corn hybrids targeting the 2013 spring planting season. The always-in-fashion agriculture business is pulling diversified chemicals major Dow Chemical (NYSE: DOW) too -- through its subsidiary Dow AgroSciences, it has taken the lead in launching the first five-gene stacked corn trait in Brazil and Argentina this planting season. And of course, how can a story about Monsanto be complete without mentioning arch-rival Dupont (NYSE: DD), which is swiftly transforming from a chemicals major to an agricultural giant (it acquired food company Danisco some time back, and is now selling off its performance chemicals business).
DuPont is chalking out expansion plans for 2013 for a newly opened soybean plant in Brazil while readying launches of several soybean varieties specifically for the Brazilian market over the next two years. For North America, after introducing 154 new corn hybrids and refuge products this year, Dupont has lined up 34 soybean varieties for commercial launch during 2013.
Beating the bugs!
Yet, no matter how hard DuPont tries, it won’t be easy to nudge the tough guy. Monsanto proved how it has the ball in its court when it won a $1 billion lawsuit over DuPont for patent infringement some months back. The two have always been at loggerheads, and the fight has now boiled down to Monsanto publicly comparing its yet-to-be-launched hybrids to Dupont’s recent (and hyped) launches.
The funnier part is that these same so-called rivals, including DuPont, continue to borrow licensed gene traits from Monsanto to develop their own, which probably is the biggest stamp of Monsanto’s leadership in the industry. And believe it or not, even rootworms are favoring Monsanto! The poor company faced flak last year when its corns failed to resist pests they were supposed to, giving the likes of DuPont a chance to make merry. Well, well…Monsanto might have the last laugh as reports of worms eating into engineered corns of DuPont and Dow (Syngenta’s Agrisure corn is under scanner too) are hitting news headlines. Talk of tables turning!
Monsanto hopes to earn anything between $4.18 and $4.32 per share in 2013, which would be a good jump from $3.70 earned this year. Not tough at all for a company that ended a challenging 2012 financial year with 25% growth in EPS. Monsanto’s financial standing is anyway strong enough to withstand blows -- flush with a cash balance of $3.2 billion and free cash flow of around $2.4 billion, it is one of those few companies that generate higher cash flows than net income. A total debt-to-equity ratio of just 18% with awesome interest coverage of nearly 17 times means there’s little to worry for the company. Investors’ rewards: Decent dividend yield of 1.7% and regular share buybacks.
Industry leadership, excellent operational and financial standing, solid pipeline, good returns, and great growth catalysts – Monsanto is a complete package. I strongly urge you to add Monsanto to your stock watchlist. Click here to add it.
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Neha Chamaria has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Monsanto Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!