Monsanto's Rally Bodes Well for Mosaic, CNH Global

On Wednesday, Monsanto (MON) company missed analysts expectations by $0.01 and guided down for 2008. This would normally wreck a stock with such high valuation. After starting the day down significantly (around $86, down from $90) the stock rallied all day, and today is UP, higher than it was before earnings.

What does this tell us?

#1 People think Monsanto management is being conservative in their outlook - the credo is underpromise and overdeliver. Which is what you need to do on The Street. Say you will hit one number for earnings, an easily achievable number, and then beat it soundly. This is "the game." So apparently this lowering of earnings for 2008 was ignored.

#2 There is a dearth of ways to play the agricultural boom and damn the valuation, people want into Monsanto. It has a $50 billion market cap so if hundreds of mutual funds/hedge funds want in, that is "not" that big of a market cap. In the entire agricultural space if you put together the big names, the Potash (POT), the Deere (DE), the Monsanto, all put together doesn't even equal Google (GOOG) market cap. So we have basic supply/demand dynamic as "smart" money is coming around to this 'agricultural' boom theme - by "smart", I mean about 6 months late to the game.

This is why I am not selling an ounce of Mosaic (MOS). Compared to Monsanto, Mosaic has superior growth rates and less than half the valuation (please note, one does fertilizer and one does seeds/herbicides so they are not in the same industry per se, but plays off the same trend). And let's see what CNH Global (CNH) has to say on October 23rd - if people wake up to the fact that this is the European Deere (with better growth), it might take off as well.

Disclosure: Long Mosaic, Potash, CNH Global, Google in fund; no personal positions

Comments

[sliman]

You are right on the mark. Take a look at MOO an ETF that covers the ag space.

[TraderMark]

Yep I highlighted MOO about 2 months ago on my blog. Its a very nice ETF for easy access to all the major names - in fact I own quite a few names from the ETF
POT, CNH, MOS, CF; I am looking for some pullback in the POT/MOS but CNH and CF I think still look overlooked. But for a 3-5 year time span this entire group is a place to be.