Monsanto: Within Striking Distance

According to Google Finance:

"Monsanto Company along with its subsidiaries, is a worldwide provider of agricultural products for farmers. The Company’s seeds, biotechnology trait products, and herbicides provide farmers with solutions to produce foods for consumers and feed for animals. The Company operates in two segments: Seeds and Genomics, and Agricultural Productivity."

Although Monsanto (MON) isn't a Dividend Achiever or a member of the Nasdaq 100, the company has a solid history and provides investors with an exceptional opportunity.

MON is currently trading within 5.85% of the the 52-week low. What is significant about the low that MON is approaching is that it is close to the November 2008 low. This is a critical support level for the stock which could indicate that a major reversal is ahead.

According to Dow Theory, MON is projected to decline to the following levels:

• $52.17
• $37.08
• $21.99
• $6.90

Each of the downside targets, based on Dow Theory, should provide some kind of support level. Interestingly, MON's 50% level, based on the decline from the prior peak and the July 2002 low, is at $67.90. This means that either the stock declines much further or the stock rebounds from here.

According to Value Investment Survey dated August 2009, MON typically reverts to a level of 17 times cashflow. Full year 2008 cash flow was $4.50 per share. This equals a price of $76.50 that the shares should revert to at some point in the future. Value Line seems to believe that, for 2009, MON should achieve cash flow of $5.55 per share which implies a mean price of $94.35. I would opt for the lower price just to play it safe. In the period from 1981 to 1996, Value Line had a smaller mean price to cash flow (13x). This means that as time has gone on since $81 to $96 MON has managed to improve their price to cash flow figures.

With MON trading at 11% below the historical mean value, as well as being within 6% of the low, this is a good opportunity to get your research in as the share price declines. Focus on the downside risk and good luck.

Disclosure: No positions

Comments

[manuel:]

Relative Strenght Index is also around 20, a verY Good entrY point, sorrY can you explain me how you came up with the 4 levels mentioned above, is it some kind of fibonacci? But fibonacci retraces highs with actual lows, not past lows with past highs......

Nov 04 10:36 AM

[manuel:]

Don´t you think that going back 7 years, to your low, is a bit too much, but all the other points you made are good, I believe November lows are Strong Support levels, but should it go under I don´ t think your levels will be useful, opticallY on the Chart 40 $ and 60 $ look like possible support levels, 2006 and 2007 Mon traded around these levels for months......, I think traders will look for fibonacci retracements from the High(140$) to the actual supposed low around 68$ and may use them to set resistance levels, there are no resistance lines until 80$, so it could easily go to 80$ and the first fibonacci retracment 23%(possible resistance) is just around 80$, so everything looks good and Soft commodities prices are up a lot too

Nov 04 10:37 AM

[manuel:]

may be 75$ could be some kind of resistance, but 80 looks better as resistance, it is also 200 MA, so it could easily go above 75 to 80$, last time it hit the lows in october november and december it went from 70 to 80 in one or two weeks with no pullback, so it reallY looks like a great buY......it is also trading at the lower Bollinger band, same as it did in october november and december, when it went from 70 to 80 with a straight line......in the last 3 years Relative Strenght Index never was as low as it is now......

Nov 04 10:51 AM

[manuel:]

Syngenta, Monsanto´s European competitor is trading 40% above its november lows and it had similar troubles with its pesticide business......

Nov 04 11:02 AM

[manuel:]

But Syngenta has a lower Forward P/E(2010), Syngenta Forward P/E is around 14 and Monsanto is around 20......, Monsanto has a 12 Months target consensus of 87$, forward P/E 2011 is 15 and 2012 is 10 considering actual price and estimated Earnings(Data taken from Nasdaq Website)......

www.nasdaq.com/earning...

Nov 04 11:12 AM

[Dividend Inc:]

Dow Theory is based on the writings of Charles H. Dow (founder WSJ and Dow Industrial and Dow Transport Index) as interpreted by S.A. Nelson, William Peter Hamilton (editor WSJ), Robert Rhea, E. George Schaefer, and Richard Russell.

The Dow Theory observes that stocks will retrace 1/3, 2/3, or 3/3 of a increase or decline of a previous movement. However, unlike the manner in which you mentioned that you use Fibonacci numbers, Dow Theorists wait until the turn takes place before calculating the upside and downside targets. Obviously, both methods are more art than science and therefore are only worth what you get out of them.

I suspect that those who apply upside target to a falling stock or index aren't appreciating the value of the current declining trend. When a stock is falling, I calculate the downside targets. When a stock is rising, to be cautious, I calculate the downside targets. The upside always takes care of itself.

There is a lot more on the topic of Dow's Theory on my blog at dividendinc.blogspot.c.... I think that you'll appreciate the fact that while Fibonacci numbers reflect nature, Dow Theory reflects the nature of markets specifically. I think that the most effective use of Fibonacciss is when they are applied to the Wave Principle.


On Nov 04 10:36 AM manuel wrote:

>
> Relative Strenght Index is also around 20, a verY Good entrY point,
> sorrY can you explain me how you came up with the 4 levels mentioned
> above, is it some kind of fibonacci? But fibonacci retraces highs
> with actual lows, not past lows with past highs......

Nov 04 12:15 PM

[manuel:]

So now we are at 50% of the downward retracement(taking your 2002 low which I think is too far away) , and 52 would be 2/3, and what would 37 and 21 be? And ok you look at the downside targets, but once a Good Long term Stock approaches such Strong Support levels and the Relative Strenght Index is so low I think it is legitimate to calculate Upside Targets. On such Good Long Term Stocks the downward trend attracts more BuYers than sellers, so I think that probalblY manY traders are calculating the Upside right now, but you are Right calculating and somehow knowing the downward potential is not a bad thing, I do not use fibonacci but I know that when a Stock starts rising again manY others will and I let the Upside take care of itself......


On Nov 04 12:15 PM Dividend Inc wrote:

> Dow Theory is based on the writings of Charles H. Dow (founder WSJ
> and Dow Industrial and Dow Transport Index) as interpreted by S.A.
> Nelson, William Peter Hamilton (editor WSJ), Robert Rhea, E. George
> Schaefer, and Richard Russell.
>
> The Dow Theory observes that stocks will retrace 1/3, 2/3, or 3/3
> of a increase or decline of a previous movement. However, unlike
> the manner in which you mentioned that you use Fibonacci numbers,
> Dow Theorists wait until the turn takes place before calculating
> the upside and downside targets. Obviously, both methods are more
> art than science and therefore are only worth what you get out of
> them.
>
> I suspect that those who apply upside target to a falling stock or
> index aren't appreciating the value of the current declining trend.
> When a stock is falling, I calculate the downside targets. When
> a stock is rising, to be cautious, I calculate the downside targets.
> The upside always takes care of itself.
>
> There is a lot more on the topic of Dow's Theory on my blog at dividendinc.blogspot.c....
> I think that you'll appreciate the fact that while Fibonacci numbers
> reflect nature, Dow Theory reflects the nature of markets specifically.
> I think that the most effective use of Fibonacciss is when they are
> applied to the Wave Principle.

Nov 04 12:46 PM

[Moon Kil Woong:]

Agreed I like STY better than MON but I think most all industry bad news is already priced in. Sure they can fall in tune with the market but then so will most every stock. If you want to bet that just short the stocks with the highest volatility with a strong correlation to the S&P.

Nov 04 10:29 PM

[bluebare:]

MON reported 4th qtr 2009 earnings of $0.02 per share on 10/7/09. This beat the $0.01 consensus of the 16 analysts covering the company. Good luck Div.

Nov 04 11:45 PM

[David Van K...:]

Is it just me, or is this one of the most incomprehensible articles and series of comments? There are 4 downside "targets," yet each is also a "support level," however the next downside target level is below the last support level? Meaning that the stock could go up or down from each level after spending, what, 5 minutes there? And for sure, at $67.90 (which is not one of the 4 support levels), the stock will surely either go down much farther or rebound upwards from there?

Huh?

Nov 05 10:38 PM

[Dividend Inc:]

Agreed Van Knapp...I'll try to include charts for each concept that I refer to so that it is much more clearer. Thanks for the comment.

Nov 05 11:59 PM

[manuel:]

my prediction was so Right!

Dec 18 10:49 AM

[Dividend Inc:]

Greetings Manuel,

You were definitely on the mark with the Monsanto call. You might enjoy reading the sell recommendation that we offered up on December 9th (www.newlowobserver.com...). We're not willing to play chicken with such tremendous gains in a short period of time. Although, a case could be made for holding this stock long term if bought at the right price...the one you and I agreed upon back in October.

Dec 18 02:16 PM