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A Chemical Jewel
08/27/2012 10:00 am EST
There are a number of reasons that this chemical stock has tremendous potential over the coming year, says Neil George, and he outlines those reasons here.
The next leg up from Monsanto. We're here with Neil George, who's going to tell us about this giant chemical company and what its future looks like.
Well, Gregg, thanks very much for having me in this session. Monsanto (MON) has been one of those companies that for so long was the darling of Wall Street.
After coming back to the public market in the 90s after going through major investor shares to some of their unrelated businesses away from the agricultural area, Monsanto was one of those major high-flying stocks-you know, generally outperforming the S&P by multiples for many, many years.
Was it a Dow darling, or was it just one of the premier US stocks out there?
Yeah, it was one of the premier stocks. Now, what we've really seen over the past few years, though is bit of a retracement of fortune.
The idea that the company was seeing some of its quarterly reports showing declining revenues, and therefore a lot of the analysts as well as the general public were starting to either sell it, not really understanding the story, or even short the company. So the result was that Monsanto stock really sort of stalled out.
Now, over the past trailing 12 months, you know Monsanto has basically been showing some dramatic improvements in the quarterly reports, and the stock is outperforming the S&P by a factor of 10:1, so the idea is that we're starting to see some major performance.
The key thing that has occurred is we've gone from getting rid of some of their bulk-chemical businesses, like generic agricultural chemicals, and focusing on higher-value genetically modified seed products. As a result, between the current products as well as in the pipeline coming out of the laboratories, Monsanto really is addressing the world's needs for more agricultural production, better quality agricultural production, and dealing with often times very hostile environments.
Well, I also assume that this is a long-term play for them in emerging markets, where you're having a growing middle class, people that are looking to eat a little bit better, countries that are looking to supplement their own ability to grow food and distribute food among their people. Is that the trend?
Absolutely, Gregg, and I think the key thing is a lot of people have been looking at the commodity markets recently. There's been a lot of concern that commodities are softening under the idea of slower growth in the European Union, and maybe less aggressive growth in China, and we've seen some concerns even in Latin America.
But while you're looking at some of the industrial commodities coming under pressure, you're looking at maybe gold, platinum, silver having some concerns, maybe being overinflated. The foodstuffs, the real agricultural products, they're basically still remaining fairly robust. Because as you mentioned, even if you're seeing a slightly slower economy throughout the world, you're still seeing the emerging markets having tremendous increased demand.
We're even seeing some changes that are happening legislatively in several countries. One of the more crucial things happening in Brazil-which is a major customer for Monsanto products-the Rousseff-led government was currently debating and discussing the so-called Forest Act, which is going to allow further deforestation of Brazil in order to increase agricultural production.
They have more recently also acquiesced and admitted more Monsanto products, and have actually settled some of the disputes over some of the contracts between some of the agricultural users of Monsanto products recently. So Brazil is going to be a major increased consumer.
You have India, China, Indonesia and so forth. The list goes on and on. Monsanto has made the appropriate case that GMO works, it's safe, and it increases production on a wide variety of products. That's why you're starting to see the market respond very positively.
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