The Big Secret Monsanto’s Earnings Reveal

Chemical, agrichemical businesses evading government's grasp

   
The Big Secret Monsanto’s Earnings Reveal

Monsanto (NYSE:MON) is kicking butt. The numbers themselves tell a lot — nobody is going to scoff at 33% revenue growth and beating analyst estimates by 6 cents per share. The story everyone else is missing is what the numbers say about Monsanto specifically and the chemical industry in general.

In these days of overzealous government regulation — in which the EPA has virtually destroyed our domestic cement-making business, sending that sector’s stocks down considerably — you’d think the evildoers at Monsanto making (gasp) genetically modified seeds would have been keelhauled by now. It turns out that despite the unfriendly regulatory environment and enormous levels of bad press directed at Monsanto itself, the company continues to thrive. In fact, the FDA itself recently approved a new type of genetically modified corn seeds.

The importance of this cannot be underestimated. The organics industry has a very powerful lobby and engages third parties like the sketchy Environmental Working Group to spread the message against all things non-organic. That Monsanto remains a global agribusiness powerhouse, with soaring revenue and earnings, show that the people who matter — the purchasers of their products — haven’t been affected. That’s good news in the long term for Monsanto shareholders.

Yet the good news does not end there. Monsanto’s competitors, like Sygenta (NYSE:SYA), also take should heart in this news. One can extrapolate this news to the entire agribusiness sector, as well as the chemical industry. Companies like Potash of Saskatchewan (NYSE:POT) and The Mosaic Company (NYSE:MOS) also have seen solid earnings growth despite the regulatory and activist headwinds. Let’s not forget great companies like DuPont (NYSE:DD) and Dow Chemical (NYSE:DOW) that also serve the agricultural realms. All of these companies are trading at reasonable multiples, with plenty of free cash flow, have substantial R&D budgets and even pay a dividend.

The clean little secret, then, is that despite widespread irrational chemophobia, the chemical and agrichemical industries continue to boom. It’s a testament to the insistence of smart businesses to rely on reason rather than fear that shareholders are rewarded. That’s the kind of management you want running your business.

I think all of these companies are buys, particularly Monsanto and DuPont.

Lawrence Meyers does not own shares of any company mentioned.


Article printed from InvestorPlace Media, http://investorplace.com/2012/01/the-big-secret-monsanto-earnings-reveal-mon-stock/.

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