Shares of Monsanto (NYSE: MON ) hit a 52-week high today. Let's take a look at how the company got there to find out whether there are still clear skies ahead.
How it got here
There aren't many big news movers to watch for a long-standing stable stock that rides the ebb and flow of planting season. Monsanto had three of 'em this year: earnings (in the third quarter), earnings (in the second quarter), and earnings (in the first quarter). Over the past 52 weeks, Monsanto has pulled away from its farm-supply peers, riding the strength of strong earnings to a 20% gain:
MON Total Return Price data by YCharts
My fellow Fool Jacob Roche offers one easy way to figure out why this separation has occurred: market share. Monsanto, already the seed leader, pulled way ahead of the pack by 2009, leaving both DuPont (NYSE: DD ) and Syngenta (NYSE: SYT ) in the dust. Monsanto's most recently tallied market share bested both companies combined!
Are there other reasons for the market's preference for Monsanto? Let's take a look at a few key metrics to find out.
What you need to know
Monsanto isn't cheap compared to most of its peers, but it's got two things going for it: earnings stability and a strong net margin. The company's free cash flow is also a lot closer to its net income than most of its peers:
Price to Free Cash Flow
3-Year Annualized Earnings Growth
Net Margin (TTM)
|Dow Chemical (NYSE: DOW )||13.7||27.7||86.8%||4.2%|
|Deere (NYSE: DE )||10.7||NM||50.4%||8.8%|
Source: Morningstar. NM = not material because of negative results.
DuPont, Dow, and Deere all had a hefty rebound from the recession, but over the long run Monsanto's not only kept its earnings running strong, it's grown those earnings at a greater rate:
MON Net Income TTM data by YCharts
Monsanto's seed focus helps keep those margins high, as it can offer patented varieties while simultaneously developing the next big thing. Monsanto's drought-resistant corn products are also sure to be in even higher demand now. This year's dry weather has created the worst drought in the United States since the '50s, affecting huge swaths of farmland across the country.
There are sure to be plenty of negative consequences of that drought, but it will push the entire farming industry toward hardier varieties. If you're going to bet on one company to come out ahead in these extreme weather conditions, Monsanto would be on top of the list.
On the other hand, Monsanto faces some opposition to its weed-killer developments. That could trip up the company if bug problems turn out to be a bigger threat than drought problems. A number of farmers have banded together to pressure government agencies to keep a closer eye on any new formulations, to ensure that whatever's sprayed over those amber waves of grain won't mess up the pinkish waves of human intestines that'll digest the grain later.
Where does Monsanto go from here? That will depend on its ability to stay ahead of the curve, where both extreme weather conditions and nasty pests are concerned. The Motley Fool's CAPS community thinks Monsanto has a strong chance to outrun its challenges. Our CAPS players give it a four-star rating, with an impressive 96% of all active players expecting the stock to continue its 52-week trend higher. I'll add my vote to this group, and will place an outperform CAPScall on the stock today.
Interested in tracking this stock as it continues on its path? Add Monsanto to your watchlist now for all the news we Fools can find, delivered to your inbox as it happens. If you're looking for other stable stocks to anchor your portfolio's growth, The Motley Fool has three handpicked market champions in mind for you to buy today. Find out more about these great opportunities in our free report on the "3 Stocks That Will Help You Retire Rich."