Markman on the Markets: Is it Time to Buy Monsanto?

Is it time to buy Monsanto Co. (NYSE: MON)?

My research tells me that the answer to that question is a definite “yes.”

When it comes to basic materials investments, we’ve talked a lot about gold and steel, but don’t forget the agricultural goods. As you can see in the chart that follows, St. Louis-based seed-producer Monsanto last week broke out of a long downtrend and consolidation.

Historically, this is a great time to own Monsanto shares, anyway. In each of the past nine years, the company’s stock has rallied an average of 8.6% from Nov. 20 through Dec. 9, according to data from Markethistory.com.

Looking out farther, and considering the 35-trading-day span that started on Friday (Nov. 20), Monsanto has a perfect record, with an average 15.2% profit. That span would take you into the first week of January. The last two years yielded returns over that span of 16.3% (2008) and 26.8% (2007).

If you’re into options and understand the risks, Monsanto’s December and January call options are pretty cheap because the stock’s volatility has been so low. If you got the 15% average advance into January, the price would be $88. I told my Strategic Advantage subscribers late last week to consider buying the $85 calls struck in December (MONLQ or MONAQ). They’re up quite a bit since, but still worth a shot for the gamblers in the crowd.

Monsanto is Bullish

The company appears to be pretty bullish on its own future. A quarter of a century ago, Monsanto helped establish a new research campus in Chesterfield, Mo., a city that’s a major western suburb of St. Louis.

Last week, Monsanto reclaimed that bit of its history by agreeing to acquire the Chesterfield Village Research Center property from Pfizer Inc. (NYSE: PFE) for $435 million, according to media reports. The move will not only help ease a major space crunch at Monsanto’s Creve Coeur headquarters, it also advances the company’s plans to expand its research-and-development operation. Indeed, Monsanto already plans to invest about $1 billion during the current fiscal year in the development of new corn, cotton and soybean seeds.

“St. Louis is already a home to a large percentage of our R&D activity, and this allows us to consolidate our capabilities here and eventually expand them,” Monsanto Chief Technology Officer Robb Fraley told the St. Louis Chinese American News in an interview.

[ Editor's Note: Veteran portfolio manager, commentator and author Jon Markman brings deep and detailed insights like these to the readers of his Strategic Advantage newsletter every week. In a new report, Markman details how a new type of market was ushered into existence by the global financial crisis. It's a market that's tightly controlled and rapidly deployed. And it's a market that dispenses with many of the tried-and-true rules of investing that we learned to follow as a matter of routine.

Those old lessons are out the window, Markman says, noting that "Investing will never be the same." But with the new rules have come new profit opportunities – opportunities that Markman chronicles each week in Strategic Advantage.

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News and Related Story Links :

• St. Louis Chinese American News:
  Monsanto Buying Pfizer Research Campus.
• Wikipedia:
  Chesterfield, Mo.