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Inside Wall Street


Bigger Yields Ahead at Monsanto

Shares of Monsanto (MON), the top global producer of seeds and other farm supplies, are withering, plunging to 75.91 a share from 145 in mid-June. "The stock is trading like Monsanto is facing zero growth, which certainly isn't the case," says Kevin Schacknofsky, portfolio manager at Alpine Woods Capital Investors (ADINX), which owns stock. "Monsanto is seeing significant growth in creating more yield for farmers."

The truth, he says, is that production of grains, such as corn and soybeans, hasn't caught up with surging world demand. Despite recent record harvests, he notes, inventories are near their lows. And the situation isn't likely to get any better in 2009. Because global financing is tight, farmers in many countries will have to cut fertilizer spending in the short term, leading to smaller crops—thus pushing up agricultural prices, he says. That should spur many farmers to seek additional yields by using Monsanto's premium seeds, including genetically modified ones, and herbicides.

Analyst Chris Shaw of investment bank UBS, who rates Monsanto a buy, believes most farmers are willing to pay extra for the crop enhancement and improved harvests that Monsanto's products help provide. Shaw's 12-month target price is 140 a share, based on estimated earnings of $4.55 a share for fiscal 2009 ending Aug. 31, and $5.20 in 2010, vs. 2008's $3.64.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Halliburton, a Bet on Oil's Rebound

Even though this may be a painful bear market, the maxim for long-term investing stays true: Buy the strongest companies in the worst of times. Veteran market analyst Glenn Cutler says Halliburton (HAL) fits the bill as oil prices fall.

Shares of this globally integrated oil-services company skidded to 13 a share on Nov. 20, down from 55 in July. They edged up to 18.41 on Dec. 17. It will be among the first to snap back once the economy and oil prices recover, says Cutler (he owns stock), publisher of Cutler's Stock Market Blog & Special Situations Reports at TheWinnersForum.com. He says Halliburton's strong balance sheet, with cash of $1 billion and a $1.6 billion credit line, provides a safety cushion.

Joe Agular of investment firm Johnson Rice rates Halliburton a buy and sees profits of $3 a share in 2009 and $3.35 in 2010, up from 2008's estimated $2.88.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

PharmAthene's Pentagon Deals

The threat of bioterrorism hasn't gone away, and the Defense Dept. continues to bolster its biodefense arsenal. This focuses attention on PharmAthene (PIP), which has been awarded defense contracts to make second-generation anthrax vaccines and therapeutic agents against poison nerve gas. Stephen Brozak of WBB Securities says Pharm-Athene is a "biodefense pure play," whose shares have dropped to 1.50, down from 2.35 on Sept. 15. Brozak rates it a buy and sees the stock at 5 in a year. (Its big rival, Emergent BioSolutions (EBS), which has been awarded a $448 million contract to supply anthrax vaccines to the Strategic National Stockpile, is trading at 22).

As of Nov. 30, "all contracts awarded to us are potentially worth $554 million," says CEO David Wright. Elemer Piros of Rodman & Renshaw rates the stock outperform, with a price target of 6.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Marcial writes the Inside Wall Street column for BusinessWeek. In 2008, FT Press published the book Gene Marcial's 7 Commandments of Stock Investing.


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