The past year has been a tough one for the agricultural industry, and Monsanto (NYSE:MON) has seen its stock lose almost a quarter of its value since early 2015. Poor prices for commodity crops have taken their toll on demand from farmers, but Monsanto hasn't let tough times temper its long-term enthusiasm about the industry. Let's take a look at three reasons why Monsanto stock could reverse its recent losses and climb from here.
Growth initiatives are aimed at the entire world
Monsanto's most important competitive advantage is its innovative spirit. Even when the company goes through ordinary cyclical downturns, it's important for investors not to forget Monsanto's ability to find new ways to grow. The company's product pipeline is impressive, and success stories show the potential for Monsanto to reap long-term rewards from its efforts on the research and development front.
For instance, Monsanto has seen success with a new type of soybean that is specifically designed for the climate conditions prevailing in key markets in the Southern Hemisphere, including Brazil and Argentina. Other products in Monsanto's pipeline include insecticides and disease control, which the company hasn't tapped to nearly the extent of some of its rivals. Even though corn, soybeans, and cotton represent key staple markets that Monsanto will continue to focus on, it is also looking at ancillary agricultural markets such as tomatoes and cucumbers to extend its reach. By taking advantage of its already impressive size and scope, Monsanto shares could benefit from its growth efforts.
Consolidation in the agricultural productivity industry
For a while now, Monsanto has made multiple attempts to try to combine with peers in its industry. In the end, though, it has been its rivals that have made combinations. In particular, Dow Chemical and DuPont are looking to join forces in a deal that will eventually lead to the separation of their combined agricultural productivity businesses. More recently, the offer that Syngenta (NYSE:SYT) received from China-based ChemChina put an end to Monsanto's long pursuit of the Swiss company.
But even though Monsanto won't see a Syngenta merger, many believe that its plans for future acquisitions are far from dead. CEO Hugh Grant has said that he's fine with Monsanto remaining an independent player in the industry, but he also sees it as a choice prospect for candidates looking for a merger. Candidates such as BASF, Bayer, or FMC could help Monsanto realize its hopes for building up its crop-protection product line. If any of those combinations happen, the growth that Monsanto could see would likely raise earnings and put the company in an even better position to benefit when the agricultural cycle turns upward.
The rise of agricultural data collection and analysis
The Big Data movement has grabbed hold in the technology industry, but many people don't realize the vital role it could play in agriculture. By using the Internet of Things to collect data, agricultural companies could keep a tighter rein on the progress of their crops during the growing season and be smarter about how they respond to changing conditions.
That's the thesis behind Monsanto's Climate Corp. subsidiary, which takes weather information and uses data analytics to provide useful tips that its clients can use to enhance their seasonal crop yields. Monsanto has worked hard at trying to build up the business, working with farm equipment specialist Deere (NYSE:DE) to incorporate Monsanto's FieldView platform into Deere's products. By giving farmers the ability to get useful data regarding their crops, Monsanto hopes that it will be able to work more closely with customers to deliver tailored solutions to their immediate problems. If successful, that can only help boost earnings and give shareholders greater long-term returns.
Monsanto stock has struggled through agriculture's recent slump. But the company still has its strategic focus, and over time, Monsanto could see its stock bounce back substantially once conditions in the industry improve.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool is short Deere & Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.