"As incomes around the world rise, so does demand for food; and the explosive growth in population is aggravating the situation even further," note Yiannis Mostrous and Roger Conrad.
The co-editors of Vital Resource Investor explain, "The big cycle in food demand has begun, and long-term-oriented investors will be rewarded handsomely." What's the best play? Among their favorites is Monsanto (NYSE: MON).
"Monsanto is the undisputed leader in the genetically modified (GM) seed industry. Its business consists of two segments: Seeds/Genomics and Agricultural Productivity.
"The Seeds/Genomics segment consists of the company's global seeds and traits business, and genetic technology platforms, including biotechnology, breeding and genomics.
"The Agricultural Productivity segment consists primarily of crop protection products, residential lawn-and-garden herbicide products, and the company's animal agricultural businesses.
"Monsanto shares have been affected by the market's shorter-term gyrations, but the underlying business is extremely healthy. In fact, the seed business is currently in a sweet spot as global food demand changes dramatically.
"The upshot is industry leader Monsanto is virtually guaranteed greater earnings growth and solid pricing power. "This, in turn, means high cash flows and enhanced financial strength, a condition that gives the company the opportunity to allocate more funds toward research and to strengthen its product pipeline.
"Monsanto should be viewed the same way one would examine a pharmaceutical company, with close attention to R&D commitments and, consequently, the potential of the product pipeline and the company's ability to execute.
"Not surprisingly, R&D is one of the company's great assets. Between 1995 and 2007, Monsanto spent approximately $6.8 billion on R&D, and in the next 10 years close to $20 billion will be spent.
"There are three main ways the company's products can make a difference for a farmer: increased yield (revenue growth), greater farm efficiency (time/cost savings) and decreased use of agricultural inputs (cost savings).
"Monsanto's stock has underperformed this year, and now it's playing catch-up. The recent selloff, with the stock trading at an attractive valuation, provides a strong entry point. Buy Monsanto at current prices for leveraged exposure to agricultural efficiency."
Steven Halpern's TheStockAdvisors.com offers a daily look at the latest market commentary and favorite stock picks and investment ideas from the nation's leading financial newsletter advisors.
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