Mike Stathis

Monsanto: Turn Rising Food Prices Into Profits

While I appreciate the author’s commentary, I’d like to add a few important points:

(1) I think this material is a bit outdated – by at least 3 years. If you take a look at the stock price since then as well as the current food problems, especially with corn, ethanol, etc., it appears to me that some less informed investors might rush into this stock thinking it will soar from here.

(2) I did not see any treatment of risk or any of the controversial issues that are rising in momentum. Without this, there is no way an investor can make a reasonable decision. Namely, many nations have banned Monsanto’s GM crops, which puts a nice cap of growth. As well, even in the USA, many consumers are protesting the safety of GM-crops, and there is significant scientific evidence that these concerns have merit. At some point, growth will be limited to population growth plus some premium. While that point may not occur for a while, the lack of global acceptance of GM crops is concerning.

Finally, the future of patent laws for biotech is highly uncertain. In support of the author’s estimates (although not mentioned), the fact is that the USPTO has permitted Monsanto to establish a monopoly in GM crops due to its world-leading number of biotechnology claimed patents, at nearly 700. This bodes well for them. However, the laws surrounding biotechnology intellectual property are still way up in the air and things could change at any time. If the USPTO ruled that Monsanto was no longer able to claim ownership rights to GM, this could turn the company upside down overnight. As you will recall, prior to 2003, MON was struggling for growth, and the stock bottomed in the low teens.

In conclusion, it's easy to be bullish on a stock that's had a great run, especially when the dumb money has recently bought it (i.e. the clowns who watch Cramer, who apparently recommended the stock a month ago). But the sophisticated investor will weigh all of the data - the pros and cons - and look at current market risk as well as the run that stock has made prior to making the determination whether it fits his or her investment horizon and risk tolerance. It looks as if bkinn understands this philosophy.