Generally speaking, I believe that uncertainties in the market are one of the best creators of investment opportunities. For example, the market was uncertain of the effects of Green Mountain Coffee’s K-Cup patents expiring, and this allowed investors to scoop up shares for around $17, or 78% less than the current price, just months later. Another example of this is Monsanto Company (NYSE:MON) who are being hit by a fresh wave of bad publicity and protests. Although the company’s shares haven’t dropped as a result, I believe their troubles are causing shares to trade at a nice discount relative to their growth and profit potential.
Monsanto Company (NYSE:MON) provides agricultural solutions, including seeds, herbicides, and other products. Monsanto is the largest maker of glyphosate herbicides in the United States, which it sells under its Roundup brand name; however, the Roundup line of products only accounts for about 10% of Monsanto Company (NYSE:MON)’s revenue.
Most of the company’s money is made from their seed products, many of which are genetically modified to be resistant to herbicides, particularly glyphosate, which the company produces. Other seeds made by the company are modified to produce an insecticidal protein, which the company has produced in potato, maize, soybean, and cotton seeds. Last year Monsanto Company (NYSE:MON) was the world’s largest supplier of seeds, and they sell 4,000 distinct varieties according to their website.
Monsanto Company (NYSE:MON) is developing and producing “next-generation seeds,” which are forecast to be one of the major drivers of growth going forward, as they bring higher profit margins. The company’s international business is also beginning to take off, especially in South America. Revenues are projected to grow by 12% this year, and combined with the expected higher margins, should translate to very nice earnings growth.
Because of this, the company trades at a relatively high P/E of 21.7 times TTM earnings, but I think this valuation is more than fair. The company is expected to earn $4.60 this year, rising to $5.29 and $6.01 in 2014 and 2015 respectively, due to the combination of revenue growth and high margins mentioned earlier. This translates to a 3-year average forward earnings growth rate of about 17.6%, which more than justifies the valuation. Also worthy of consideration is Monsanto Company (NYSE:MON)’s excellent balance sheet which features, among other things, $4.8 billion in cash and equivalents and just over $2 billion in debt.
March Against Monsanto
The latest in a long string of bad publicity for the company was the “March Against Monsanto Company (NYSE:MON)” which took place on May 25 and was a grassroots movement to protest against Monsanto and genetically modified organisms (GMOs). The protests took place in over 400 cities around the world and had at least 200,000 participants.
The movement began as a result of the defeat of California Proposition 37 which would have required labeling of genetically engineered food products. What escalated the efforts was the passage of the Farmer Assurance Provision, which is referred to by critics as the “Monsanto Protection Act” which essentially allows growers to continue to cultivate allegedly unsafe crops while the legal process is underway.