With a market cap of $56 billion and a one year stock price growth of around 40%, Monsanto Company (NYSE:MON) looks like a wonderful investment. Having squeezed most other agribusinesses out of the market, Monsanto also has no real competitors. A cash position of $4.7 billion and a total quarterly revenue of over $3 billion makes this stock even more attractive.
So what’s the buzz (all puns intended)? Why would a stock like this ever go down? Besides the grand scale die-off of “our friend the honeybee,” here are five good reasons why this Foolish blogger thinks this stock’s growth rate is not sustainable, and why a Foolish investor should run the other way.
Its patents are expiring
Monsanto has maintained a virtual monopoly over competitors in the agricultural seed business by aggressively enforcing its patents, particularly for its Roundup Ready or Roundup pesticide-resistant seeds. The last patent for these seeds expires in 2014, opening up the market to companies such as Dupont. Monsanto Company (NYSE:MON) has announced it will allow farmers to save seeds and not repurchase them after the expiration event, eliminating revenue. What will replace this revenue stream? And what is to keep Dupont, a strong competitor, from literally eating its lunch?
Its not friendly
Monsanto Company (NYSE:MON)’s public opinion scores are dropping. The company is known for either creating or having influenced some controversial issues, including the following:
–Petroleum-based fertilizers that kill beneficial soil microorganisms
–Roundup, which has been linked to butterfly and honeybee mortalities as well as to the appearance of “superweeds” that can’t be easily killed (just like the super bacteria developing through the overuse of antibiotics)
—Bovine growth hormone, which has been linked to prostate, breast, and colon cancer
–GMOs or genetically modified crops, which have not been fully tested for human health and safety and are actively being banned in some countries, such as Hungary
Given this lovely list, it’s no wonder that on May 25 thousands gathered to protest Monsanto Company (NYSE:MON), its practices, and the dangers of GMOs. Although Dupont also offers GMOs, they have not been in the news as prominently as Monsanto. Local farmers have been aggressively sued and many put completely out of business through the enforcement of Monsanto’s patents. In the court of public opinion, Monsanto doesn’t stand a chance against a small farmer.
There are healthy alternatives
Given the rise in public interest against GMOs, Whole Foods Market, Inc. (NASDAQ:WFM) has seen a sharp uptick in sales in non-GMO foods, and more and more people are buying local produce. Whole Foods has been a solid investment for quite a long time, and is expanding aggressively into the Western markets. I personally shop there, and love the selection and variety found. To keep its high end customers, Whole Foods has taken an aggressive stance on labeling GMOs. Loyal customers have rewarded this progressive grocer with record breaking sales.
Deere & Company (NYSE:DE) is also driving solid profits. With a CAPS rating of 4 out of 5 stars, a dividend of 2.3%, a market cap of $34 billion, and strong earning growth, this stock represents a great way to invest in the agriculture sector without supporting GMO-based big agribusiness. John Deere creates products that are needed by organic and non organic, GMO and non-GMO farms alike. Any lawsuits or controversy surrounding GMOs, labeling, or the use of pesticides is unlikely to affect John Deere.
The public is likely to force GMO labeling
A bill requiring the labeling of GMO based products has just been rejected, and the public is outraged. If regulation on this issue does eventually pass, it will hurt Monsanto Company (NYSE:MON). Meanwhile, other countries such as Russia are jumping on the bandwagon and banning GMO products and seeds. Monsanto’s global market is shrinking right before our eyes.
If you run the numbers, Monsanto Company (NYSE:MON) looks like a great investment. But you can achieve better returns from socially responsible businesses like Whole Foods Market. Simply put, Monsanto has too many headwinds going against it. And it’s easier to sleep at night when you’re properly aligned with your portfolio. Monsanto is not for the Foolish.
Brenda Johnson has a long position in Whole Foods Market. The Motley Fool recommends Whole Foods Market. The Motley Fool owns shares of Whole Foods Market.
The article 5 Good Reasons Not to Invest in Monsanto originally appeared on Fool.com.
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