The company is primarily divided into three major product lines: weed control, seeds and technology.
Of the three, weed control is probably the least important. While it was once a go-to name for weed killer — even for residential users — it’s faced some challenges. Over the past decade, many of its older patents ran off, meaning they could be produced by competitors around the globe. Even if the knock-off chemicals were not quite as good, they were cheaper and therefore sold better. So the company decided to shift its focus into its other business lines.
The change wasn’t easy, and the stock price was punished for it. But now the market is recognizing the great work Monsanto has done in its other business areas.
The company is the preeminent leader in seed technologies, developing manufactured seeds that can deal with a wide variety of natural threats.
Droughts? Monsanto has seeds that are tolerant. Too wet? Monsanto has seeds that deal with potential rot. It even has seeds that kill pests, or otherwise make the plants undesirable to them.
Right now, Monsanto dominates over 90% of the commercial seed markets for corn, soybeans, cotton, sugar beets and canola.
On the technology side, the company’s labs have expanded their understanding on how to better engineer seeds. It’s no longer just about crossbreeding different species of plants to meet specific objectives. They’ve hacked into seeds at the cellular level, custom- engineering them to be impervious to current and future threats.
And seeds aren’t its only focus. You may have heard that bee colonies around the world are dying out. Culprits include Israeli Active Paralysis Virus and dangerous parasitic mites. So Monsanto is not only working on neuro-level pesticides to deal with those mites, it’s also tapping into the bee’s genetic genome to start work on building better bees.
Also on the technology front, Monsanto is rolling out a new way to monitor crops. It uses satellites and other devices to track weather, equipment and other conditions to optimize planting, maintaining and harvesting crops. That not only helps fields be more productive, it also provides another way to understand seeds and related products going forward.
The best part is that while all of this sounds like the work of science fiction or at least an idealistic start-up, Monsanto as a company is quite solid.
Growing NumbersRevenues for Monsanto’s massive core seed products continue to rise annually by an average of over 10.7%. And revenues for its newer productivity products and services are increasing by more than 16.3% per year.
The company is a cash machine, with major surpluses to self-fund its development work. And because of that, its debts are minor at only 10% of assets.
Margins overall are solid in the 24% range overall. And the return on its huge book of assets runs at an annual 10.8%. As for shareholder’s stake, the company’s return on equity runs at over 20%.
The dividend isn’t big, with a current yield of just 1.51%. But that has expanded over the past five years by an annual average of 12.46%.
The shares themselves are now trading at around $114 a share, with average annual returns running at over 29.8% per year — trouncing the averages for the S&P 500 and its peer group.
So we have a good company in a stable industry that’s experiencing modest growth and pays a good dividend. In other words, it’s the perfect candidate for a perpetual income play.
Collect Instant Income on MonsantoAs always, the perpetual income strategy starts with selling puts options against the stock.
For Monsanto (MON), I suggest selling puts with April expiration and a strike price of $110. The April $110 puts are selling for around $171 to $177 per contract.