Monsanto Continues to Climb

Monsanto, the king of corn, has shown an uncanny ability to whether a turbulent market.  With second quarter earnings coming in at a record setting pace and the recent double-bottom in the stock price – Monsanto is set for a new 52-week high…

The Numbers

Monsanto is the world’s leading producer of the herbicide known as “Roundup” and the leading manufacturer of genetically engineered seeds – holding a 70%–100% market share on various crops.

The company recently released its 2nd quarter 2008 earning and absolutely crushed estimates. Monsanto earned $2.02 per share, 18% higher than analyst estimates of $1.72.  Revenues also jumped an amazing 45% to $3.8 billion from $2.6 billion in the year prior period.

There has been a lot of talk about Monsanto being a overbought super bubble, but let’s face the facts – they have the numbers and earnings to justify the recent stock price increase.  Yes, Monsanto has a P/E ratio is 40, but it is growing at an aggressive rate and this is to be expected.
 
Just take a look at Mosaic Co (MOS) – they have had an above average P/E ratio (36 as of today) for quite a while now and that hasn’t stopped them from reaching new highs on a regular basis…

The Double Bottom

Straying away from the fundamentals isn’t for everyone, but once in a while a technical trend is so prevalent – it is impossible for one to ignore.  Over the last couple months Monsanto’s stock price has been forming what technical analysts like to call a double bottom reversal pattern:

The Double Bottom is one of the major stock reversal trends in technical analysis.  The aftermath of much a pattern usually results in new 52- week highs.

The basic shape of a Double-Bottom is the letter W, with the right part of the W being slightly lower than the left part.  The volume is also important.  The volume should be higher at the first bottom and lower when the bottom is retested.

As you cann see from the chart above – this is exactly what is going on with Monsanto.  You can see simaliar patters in for look at United Technologies Corp (UTX) in December of 1997 and Pfizer (PFE) in February of 2000.  This are classic Double Bottoms and each time the stock reached new 52-week highs.

The Bottom Line

At this moment in time, Monsanto has everything going for it: solid fundamentals, excellent technicals and lots of media coverage. If Monsanto breaks above the upper resistance level (the top red line) then there is no telling how high the stock could jump.  If Ag Stocks are something you are really bullish on, check out Mosaic Co (MOS) and Agrium Inc (AGU)…

Cheers,

Mitchell Sachs
Senior Equity Analyst, Wall Street Elite