1 Stock Set to Explode in 2013
Neha is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I gave a piece of advice to Foolish investors on Dec. 19 – to grab Monsanto (NYSE: MON) without wasting any time. The stock was trading at around $91 that time. Three weeks on, and it’s a kiss away from the three-digit mark. That’s a neat 10% gain for your records.
The seed king has already set the ball rolling for what could be one of its best years, not just in terms of stock price gains, but also with a delightful first set of numbers and guidance for the year. Now this is one stock I’d recommend even at its 52-week high, for the party has just begun for Monsanto.
Sales for Monsanto’s first quarter were up 21% and the bottom line shot up by 169% from the year-ago period. The game played out as I had expected – Latin America took the lead in turbo-charging a usually weak quarter for Monsanto. The best part is that what looked like a probable issue earlier doesn’t seem so anymore.
I had earlier touched upon how rocketing soybean prices might induce farmers in Brazil to give it priority over corn, which in turn could adversely impact sales of Monsanto which gets more than 50% sales from corn seeds and traits. As expected, Brazil’s 2012 main planting season saw lower corn acres getting planted. That would have been bad news, had the follow-up second corn-crop safrinha not shown promise. Safrinha crop is sown during the first quarter of the year, and Monsanto says sales have already picked up fast enough to be able to make up for lower peak-season demand. In hindsight, 2012 safrinha corn production was a whopping 71% higher than 2011 as per industry reports.
Go green with envy…
(Rivals, that is. Not you)
The key will be how well Monsanto markets its new launches, namely its first double-stack corn trait for Brazil and triple-stack corn for Argentina. Because rivals aren’t sitting tight-lipped. DuPont (NYSE: DD) has several new soybean varieties in the pipeline and has already chalked out plans to expand its soybean plant in Brazil this year. Syngenta (NYSE: SYT) will soon be out with its four-stack corn in Argentina after having launched 70 corn hybrids for 2013 spring already. That could mean big for a company that already gets more than a quarter of its sales from the Latin American market. Chemical major Dow Chemical (NYSE: DOW) isn’t giving agriculture a miss either (agricultural sciences account for roughly 10% of its sales currently). The company has bagged the honors of launching Argentina’s first five-gene-stack corn trait POWERCORE, smartly pairing the launch with the nation’s peak planting season late last year.
Yet, none of it can probably be too much for Monsanto which had a record 18 R&D project advancements last year. Simply put, 18 projects (including 5 in corn and 2 in soybeans) moved up the development ladder with quite a few hitting the advanced development phase and some hitting the launch phase. 2013 should then be a happening year for Monsanto, with heavy focus on Latin America. Rapid development means faster launches of new products, hence better growth opportunities and visibility. Also, when rivals like DuPont and Dow also have other businesses to worry about, Monsanto can spend it all on seeds. Naturally, its hold in the seed space is bound to be the strongest.
Critics can’t say much
But should one read a lot into Monsanto’s great first-quarter numbers when it denotes just 15% of the company’s full-year earnings? That’s an easy answer, because Monsanto’s forthcoming quarters should be even better than this one! Remember, the second and third quarters are critical in terms of sales and earnings as they coincide with the spring planting season in the U.S., and everyone’s betting on a record year. Just before Monsanto released its numbers, fertilizer player Mosaic (NYSE: MOS) presented 2013 as a year to look forward to. After few dull quarters, Mosaic kicked off 2013 with 5% growth in earnings per share year-over-year in its last quarter, and left investors with words that sound music to the ears. Here they go – “These record new crop prices support our forecast that U.S. farmers could plant 96 million acres of corn next spring, and the Brazilian farmers could apply a record 31 million tonnes of plant nutrients this year.”
Monsanto’s numbers too gave us a glimpse of what to expect over the next couple of quarters – It booked more pre-spring orders last quarter compared to a year earlier, and advance payments from U.S. customers ballooned its free cash flow to $1.5 billion, up significantly from $856 million a year ago. As of Nov. 20, 2012, Monsanto’s cash balance was a whopping $4.6 billion. That’s more than double its long-term debt.
It’s a grab!
A solid start to fiscal 2013 means Monsanto now expects to earn anything between $4.31 and $4.41 per share for the full year. Till fourth quarter, that guidance stood at $4.18 to $4.32 per share. Higher profits and heavier free cash flows from an industry leader – this one won’t fail you. Yes, it’s a must for every portfolio that wants to grow (and which doesn’t?). If you ignore this stock, do it at your own risk.
Click here to add Monsanto to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.
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Neha Chamaria has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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!