Feeling the urge to get back to the land without getting your hands dirty?
Investors have a lot choice when it comes to making a bet on agriculture, ranging from fertilizer producers to farming equipment manufacturers to funds that track a broad basket of such companies.
But the best bet might be a single stock that makes the seeds that farmers put into the ground: Monsanto Co.
These aren’t just any seeds. Monsanto is the name in genetically modified seeds designed to sprout crops that can tolerate droughts and resist pests, boosting crop yields for farmers.
True enough, fiddling with a plant’s genetic makeup is not an appealing thought to many consumers. But the strongest argument in favour of an investment in agriculture assumes an urgent need to use science in the pursuit of more food.
The United Nations estimates that the global population will pass the nine billion mark in 2050 – and the rise comes amid a shift toward higher protein diets, concerns about the impact of global warming and the fact that farmland has nowhere left to expand.
As a result, the UN Food and Agriculture Organization estimates the world will have to boost its total food production by a daunting 70 per cent.
That’s where Monsanto comes in. If the world needs more food without gaining access to more arable land, farmers are going to need yield-boosting assistance in a big way.
For sure, this argument has been made before, and embraced: Monsanto’s share price has risen more than 800 per cent since 2000, and it is up 26 per cent this year alone.
But the stock market rarely looks too far into the future, which suggests that there are plenty of long-term gains still to come – especially if you grab the stock when it gyrates with short-term concerns like a disappointing quarter.
Now might be the time. The share price is 37 per cent below its high in 2008 and trades at a reasonable 20-times estimated earnings over the next year.
Meanwhile, analysts expect the company will see earnings rise to about $6.50 (U.S.) a share by 2016, up from $3.78 in its most recent fiscal year – for a gain of more than 70 per cent.
While concerns about the global economy might be weighing on the stock right now, it is hard to see anything but a promising outlook for Monsanto if the future unfolds the way the UN sees things.
And don’t worry, you won’t have to wait until 2050 to see this bet pay off.