Is Monsanto A Buy At Multi-Year Lows?
Monsanto– Great Investment, Or Steer Clear?
Without question, Monsanto $MON is one of the most controversial companies in existence. For years, the Agricultural chemical/bio-technology giant has faced harsh criticism due to their involvement in genetically modified organisms (GMOs).
I’ll assume you know what GMOs are (and the controversy surrounding them), and not waste precious time explaining that complicated matter today.
Instead, let’s discuss Monsanto’s new problem…
The company’s immensely popular Roundup weed killer has become the subject of a class-action lawsuit.
Plaintiffs assert Monsanto is intentionally misleading consumers about the safety of Roundup. They claim the key ingredient in Roundup, glyphosate, has links to a host of illnesses, including cancer and autism.
I have to admit, the accusations are a bit unnerving…
Roundup is used around homes, gardens, golf courses, etc.- the world over. Heck, I use it around my home to kill invasive weeds- and it does a great job.
Monsanto claims directly on the bottle that glyphosate is safe because it targets an enzyme in plants that is not present in “people or pets”.
However, a few prominent scientists, along with the World Health Organization, now disagree with the company’s safety claims.
In my opinion, the real bombshell comes from the fact an estimated 100 million tons of Roundup are sprayed on US corn, soybean, canola, and sugar beet crops each and every year.
Monsanto’s Roundup Ready GMO crops are designed to withstand the herbicide while unwanted weeds shrivel and die.
Here’s the deal…
A recent study reveals glyphosate residue shows up in human urine tests.
Could it be that unless you’re diligent in not eating any GMO sourced foods (and have been for the past 15 years, when Roundup Ready crops were introduced) you have traces of glyphosate floating around in your body?
And if you work with the chemical on an occupational basis, do you have considerably more?
If so, is it a cause for concern?
Maybe, maybe not…
For now, it depends on whose research you believe. Both Monsanto and opposing scientists have reams of data supporting their arguments.
All I know is that as a father of two young children I’m a bit concerned about the issue.
At the very least, I won’t be using Roundup around my house until this issue is resolved.
But let me be clear about something…
I’m not a scientist or any other kind of expert on Roundup or GMOs. I’m just a concerned consumer wondering if the accusations against Roundup are true.
That brings me to the investment thesis surrounding the company…
Once word of this class action suit spreads, plenty of other consumers will likely rethink their use of Roundup as well.
It’s not outlandish to think Monsanto’s herbicide sales could decline significantly due to this development- even if a verdict isn’t reached for years (which is likely the case).
Keep in mind, Roundup sales accounted for roughly $4.8 billion worth of revenues in fiscal 2015, which is about a third of Monsanto’s total sales.
Shares of the Ag giant have already taken quite a hit the past few months.
See for yourself…
$MON started diving in June 2015 when investors realized slowing corn seed sales would be a big financial headwind going forward. Those worries came to fruition when the company reported fiscal fourth-quarter 2015 sales of $2.3 billion- 48% lower than the previous quarter.
Due to these lousy results, Monsanto is cutting 2,600 jobs in a restructuring bid.
Here’s the question…
Is $MON a good buy at these multi-year low prices?
First of all, the company is trading at just 14x forward earning, which is cheaper than Ag rivals Dupont $DD, and Sygenta $SYT. So if you’re interested in investing in a company that’s trying to feed a quickly growing globally population via GMOs, now may be your time to strike in $MON.
It’s also important to note the company just introduced a $3 billion share buyback program. Clearly, Monsanto thinks its shares are undervalued at these levels as well.
However, you just can’t ignore the litigation risks $MON faces going forward…
Given burgeoning class action lawsuits against the company, their legal defense expense will likely rise considerably. That factor, mixed with declining Roundup pricing and sales, and it’s not out of line to think $MON still has more downside ahead of it.
What’s your decision?
Personally, I’m steering clear of $MON until I see more clarity on the Roundup issue. There are plenty of other value investment opportunities out there that don’t have huge litigation risks attached to it.
However, I have a feeling most investors will be more attracted to the value proposition $MON currently provides.
Until Next Time,
Justin Bennett
Commodity Trading Research
***Editor’s Note*** If you’d like to hear a great debate on the safety of GMOs, I highly recommend this presentation by intelligencesquaredus.org.
BIO: Justin Bennett is the head commodity research analyst at Commoditytradingresearch.com. With over a decade of real world trading experience, he finds ways for you to consistently profit from movements in commodities and the companies producing them. Sign up for our free reports and commodity newsletter at http://commoditytradingresearch.com/free-sign-up.
Category: Commodities
