Monsanto Company (MON): Why This Stock Won’t Pause Even if Markets Slip

Now if I consider a product line like agricultural equipment, it certainly stands in better stead than nutrients. Deere (NYSE:DE), the world’s top tractor maker, saw its financial year 2012 net sales grow 13%, with a 9.5% improvement in net profit. Agriculture equipment sales rose 16%. That’s good, but again, how much farm equipment sale grow depends largely on how cash rich farmers are. Tractors are not something a farmer needs to replace every year, unlike seeds. And those with an aging fleet might also postpone fresh purchases if a year turns out less profitable, perhaps because of low crop prices or yields. Is that why Deere expects a modest 4% rise in farm equipment sales this year?

Ready for the grab

The simple point I am trying to drive home is that demand, as well as prices for seeds, fluctuates the least. For Monsanto, the case could get stronger this year as it specializes in genetically modified seeds that have the ability to withstand severe weather conditions, as well as pests, to a great extent. After the ravaging drought, farmers are likely to be increasingly inclined towards these engineered seeds. DuPont and Syngenta should gain as well, but Monsanto’s competitive advantage lies in the fact that even DuPont licenses its gene traits for some products. DuPont even lost a $1 billion suit against Monsanto last year, though the former continues to fight it out at courts.

Monsanto Company (NYSE:MON) set a record last year with 18 projects moving up the development ladder. It has started distributing its new highly-resistant DEKALB DroughtGard corn hybrids across the Western Great Plains to make sure farmers can plant them in the upcoming spring. Latin America should be another huge opportunity this year as Monsanto launches its double- stack corn in Brazil and triple-stack corn in Argentina. Meanwhile, Syngenta is expanding its corn seed facility in Brazil, while DuPont is readying corn varieties for the same market. The two are also trying their hands at wheat hybrids, something that might be next on Monsanto’s agenda. But even without the so-called wheat hybrids, Monsanto continues to lead the race.

Foolish takeaway

Leadership and a best-in-industry profit margin places Monsanto a notch above peers. Hopes for another good spring season in the U.S. and record-breaker plantings in Latin America this year certainly don’t hurt the company’s prospects. Monsanto reported a heavy pre-spring order book in January, even prompting it to up its full-year earnings guidance. Even if it hits the lower end at $4.30 per share, that would be a good 16% upside on 2012 earnings.

Only, at 25 times earnings, Monsanto Company (NYSE:MON) is one of the most expensive stocks across the agriculture sector. But when analysts expect the company to grow at 24% clip this year, there’s not much to complain about.

The article Why This Stock Won’t Pause Even if Markets Slip originally appeared on and is written by Neha Chamaria.

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