Monsanto is hated by many. So it’s a perfect stock.
Peter Lynch liked to buy companies that were in areas people didn’t like. Few companies engender as much hatred as Monsanto (NYSE:MON). There’s nothing like a bad PR image to make a company the poster child for evil. That, however, creates great opportunities for investors.
I believe that when a lot of anger is directed at a business, it probably means that business is not only successful, but wildly successful. The greenies and organic movements hate Monsanto. Good. As Thomas Conwell, the founder of Temple University once said, ‘You can judge a man’s success by the lies told about him”.
Monsanto is fabulously successful. Its Seeds and Genomics segment produces all kind of crop seeds and develops biotechnology that assist farmers in controlling insects. The Agricultural Productivity segment manufactures and sells herbicides for agricultural, industrial, ornamental, turf, and lawns and gardens. It has operations globally, including the United States, Europe, Africa, Brazil, the Asia-Pacific, Argentina, Canada, and Mexico.
FY114 earnings are slated to grow from $4.56 to $5.21, a 14% increase, and then to $6.03 in FY15, a 17% increase. Long term EPS growth is pegged at 15%. Revenue growth looks to be up around 5-5.5%.
The company has $1.8 billion in cash and $3 billion in debt, which it also plans to restructure. Free cash flow is routinely between $2 billion and $2.5 billion annually.
In these days of overzealous government regulation , you’d think the evildoers at Monsanto making (gasp) genetically modified seeds would have been keelhauled by now. It turns out that despite the unfriendly regulatory environment and enormous levels of bad press directed at Monsanto itself, the company continues to thrive. In fact, the FDA itself recently approved a new type of genetically modified corn seeds, and a court struck down a ban on biotech crops in Hawaii.
Monsanto remains a global agribusiness powerhouse, with soaring revenue and earnings, because the people that matter – the farmers and the buyers – trump all the lobbyists, activists, politicians, and creators of silly Facebook (NASDAQ:FB) memes.
That frankly means all the companies in the agribusiness sector should thrive. They sure don’t get any attention compared to Monsanto. In fact, Monsanto was rumored to be looking at buying the massive, $30 billion Sygenta (NYSE:SYT). Other companies to look at include Potash of Saskatchewan (NYSE:POT), The Mosaic Company (NYSE:MOS), and legends like DuPont (NYSE:DD) and Dow Chemical (NYSE:DOW)
The clean little secret, then, is that despite widespread irrational chemophobia, the chemical and agrichemical industries continue to boom. It’s a testament to the insistence of smart businesses to rely on reason rather than fear that shareholders are rewarded. That’s the kind of management you want running your business.
Monsanto is here to say. The more it is referred to as “evil”, the more Facebook memes you see, the more Monsanto is going to grow.
Lawrence Meyers does not own shares in any company mentioned.
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