MONSANTO CO. (New York symbol MON; www.monsanto.com) sells technology-based agricultural products, such as genetically modified seeds, to farmers, grain processors and food producers. The company’s seeds make crops more resistant to pests, diseases and bad weather.
Monsanto gets about 70% of its revenue from genetically modified seeds for corn, soybeans and other crops. The remaining 30% comes from selling herbicides, mainly under the Roundup brand.
Monsanto’s revenue fell 10.4%, from $11.7 billion in 2009 to $10.5 billion in 2010 (fiscal years end August 31). Competition from generic herbicides hurt sales of the company’s Roundup products. However, revenue quickly recovered and rose to a record $14.9 billion in 2013.
The company laid off workers and closed plants in response to the sharp drop in Roundup sales. Costs related to these cuts lowered its earnings from $4.41 a share (or a total of $2.4 billion) in 2009 to $2.41 a share (or $1.3 billion) in 2010. However, savings from these moves boosted Monsanto’s earnings to $4.54 a share (or $2.45 billion) in 2013.
Genetically modified foods have been around for 30 years. Even so, Monsanto remains a major target for environmental and food safety activists.
Stock investing: Monsanto pays $917 million for firm that makes weather forecasting software
To cut its reliance on genetically modified seeds and weed killers, the company is diversifying into other agricultural businesses. For example, it recently paid $917 million for Climate Corp., which makes weather forecasting software and climate models. These products help farmers decide when to plant their crops to maximize their harvests.
The company also recently paid $300 million for 50% of a new venture with Denmark’s Novozymes. This business will commercialize Novozymes’ technology, which uses microscopic organisms to help plants grow and resist pests. Novozymes will develop these organisms, while Monsanto will test and market them.
Meanwhile, Monsanto continues to improve its own products. It spent $1.53 billion (or 10.3% of its revenue) on research in 2013. That’s up 1.1% from $1.52 billion (or 11.2% of revenue) in 2012.
Monsanto is up 30.2% since we first recommended it at $86 in our November 2012 issue. The $1.72 dividend yields 1.5%.
In the latest edition of Wall Street Stock Forecaster, we examine Monsanto’s outlook in light of its heavy spending on product improvement and its new diversification strategy. We also consider whether its shares can keep on rising. We conclude with our clear buy-hold-sell advice on this stock.
If you’re a member of Pat’s Inner Circle and you’d like to ask a question about today’s article, please go to the question page reserved for you (be sure you’re logged in first). Click here to ask your question.
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Many environmentalists object to Monsanto and its genetically modified seeds. Are there any stocks, or categories of stocks, that you will not invest in because you object to their products or policies?
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