Can Monsanto Go Higher?

Is Monsanto (NYSE: MON  ) headed higher, or lower? That's the question we ask when we evaluate insider buying and selling. We ask because the way that executives spend their paychecks often reflects what they think of their companies' prospects.

Of course, not all buys are equal. According to two decades' worth of research from Dr. H. Nejat Seyhun, compiled in his book Investment Intelligence from Insider Trading, buying is most predictive when it (a) comes from the CEO or other top-level executive, and (b) comes in bulk. Seyhun found that buys between 10,000 and 100,000 shares were the most informative.

How do Monsanto's managers measure up against Seyhun's benchmarks over the past year? See for yourself:

Insider Rating Bullish: Buying near recent levels and higher, and in greater bulk than equivalent sales.
Business Description A global provider of agricultural products for farmers.
Recent Price $54.12
CAPS Stars (out of 5) ****
Percentage of Shares Owned by Insiders 0.38%
Net Buying (Selling)* $3.36 million
Last Buyer (% Increase) Hugh Grant, Chairman, President, CEO
37,500 shares at $52.06 apiece on July 13, 2010
(Increased direct holdings by 9%.)
Last Seller (% Decrease) Steven Mizell, Exec. VP of Human Resources
600 shares at $52.24 apiece on Oct. 12, 2010
(Reduced direct holdings by 2%.)
Competitors DuPont (NYSE: DD  )
Martek Biosciences (Nasdaq: MATK  )
Origin Agritech (Nasdaq: SEED  )

Sources: Form 4 Oracle, Capital IQ, and Motley Fool CAPS. (Data current as of Oct. 14.)
*Open market sales and purchases only.

What we're tracking here, and why
Insider buying data can be confusing. Here, I'm concentrating only on buying and selling conducted in the open market. With most of these transactions, insiders control the timing. Other times, they're buying or selling under the purview of a 10b5-1 plan. Either way, they're buying and selling their personal holdings.

These personal holdings matter the most -- they're the shares executives hold for investment, rather than compensation. Employee stock options are different; they're compensatory in the purest sense. I've stripped out options-related buying and selling from the calculations you see above.

The Foolish view: bullish
What's the role of genetically altered superfood in a society that's going organic, and allowing the likes of Whole Foods (Nasdaq: WFMI  ) to grow revenue and by 12% annually over the past three years? Honestly, I'm not sure. I'll admit my bias to organics up front; our eldest son suffers from celiac disease and a wide range of severe food allergies.

But there's more than genetic engineering at play when it comes to Monsanto's image. The company has been cooperating with a Justice Department investigation into its competitive practices, even as the underlying business continues to perform well.

"Basically if you want the highest crop yield possible you have to use their seeds," wrote All-Star investor turtle286 in August, when the stock was trading for 8% more than it is today. "While farmers hate them for that, unless you're willing to chance disease and crop loss they have a guaranteed source of revenue. Priced this low I really can't see much downside."

Executives would appear to agree with this Fool's bullish thesis. In July, CEO Hugh Grant bought 37,500 shares at prices not far removed from today's. By comparison, the insider sellers haven't sold much. Considering Monsanto's competitive position in an industry that's basic to sustaining human life, there's really no reason to.

Do you agree? Disagree? Log into Motley Fool CAPS today and tell us how you would rate American Capital. You can also add the stock to your watchlist.

And if you want me to take a Foolish peek at the insider action of your favorite stock, email me here or use the comments box below. I'll write this column as often as you, our readers, demand.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Whole Foods is a Motley Fool Stock Advisor selection. Monsanto is a former Motley Fool Inside Value pick. Motley Fool Options has recommended a synthetic long position in Monsanto. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. The Motley Fool is also on Twitter as @TheMotleyFool. Its disclosure policy has its eye on you.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 16, 2010, at 3:46 PM, funfundvierzig wrote:

    In telling contrast to the impressive share buying of MON by the top executives of Monsanto, the world's largest and most innovative bio-seed company, the big bosses of Monsanto's nearest competitor, the DuPont chemical conglomerate, have been dumping sizable amounts of DD shares during the past six months.

    Per share earnings for DuPont in the current quarter, Q3, as well as in Q4 2010 are expected by analysts to drop significantly over the weak levels of 2009.

    ...funfun..

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