Buy Monsanto at $115? Only for the bold

Posted Dec 27th 2007 5:17PM by Joseph Lazzaro
Filed under: Commodities, Agriculture, Stocks to Buy

For or against them, bioengineered crops are here to stay and are likely to continue to play a pivotal role in economic development in emerging markets. A company destined to remain a force in this space is Monsanto (NYSE: MON).

Monsanto's biotechnology is helping farmers grow more crops, and the bio effort may one day totally displace chemical-product herbicides. In sum, most likely it's bio in, agrochemicals out, long-term.

Analysts like MON's large seed portfolio and superior performance in corn, soybean, cotton and wheat. Food demand in the developing world alone adds value to these operations, but as most realize, selected crops may play a sizable role in energy in the decade ahead, if crude oil remains at near-record levels and other alternatives do not emerge.

In addition to economies of scale, analysts also like MON's cash flow, research capabilities, and global footprint. Analysts see 2008 revenue increasing about 8-11% following a 16% gain in 2007. The Reuters F2008/F2009 EPS consensus estimates for MON are $2.58/$3.20.

The risks? Monsanto registered an impressive run in 2007 -- shares are up about 100%, and its lofty P/E throws the stock into the high-risk category: MON is not a play for low/moderate risk investors. Further, even for high-risk investors, a safer strategy would involve waiting for a pull-back to $95 or $90 before purchasing MON's shares, but keep in mind that the pull-back may not occur.

The First Call mean rating for MON is: Buy. [13 firms.] Mean 2008 target: $109.00. [high: $124, low: $85.]

Stock Analysis: Monsanto is a high-risk stock not suitable for low-risk or moderate-risk investors. Investors with an investment horizon longer than two years should be rewarded from MON's shares. Sell / Stop Loss if you were to purchase shares in this company: $68.

DISCLOSURE: Joseph Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.

Tags: agrochemicals, Asia, biotech, emerging markets, Latin America, MON, Monsanto, seeds, SeedSector