Recently I applied to an asset management company for a graduate position (they were after STEM grads for an investment analysis role). One of the questions was What do you think would make a good investment over the next five years and why? (200 words max.)”
My answer- If I was feeling particularly bullish, I would take on some risk and purchase shares of Monsanto. In my opinion the stock is currently undervalued by around 10 – 15% if the merger with Bayer goes ahead. The merger is likely not only due to the majority of shareholders voting for it, but the paperwork for the merger has been filed in both the US and Europe.
Due to the current Trump administration I see no reason it will not essentially be rubber stamped in the US, and despite the issues with the EU typically being anti-GMO tech, it is now more likely they will pass the merger (likely with conditions around R&D) after a lot of scrutiny, especially due to the potential for an expanded product range the merged company would generate (due to complimentary tech) for exports to markets such as Japan (since the EU appears favorable to a trade deal with Japan). JP Morgan analysis suggests a strong “buy” recommendation and that the stock should be valued at $128; personally I think the merger would allow for the stock to crack $130 within a 5-year time frame. Obviously there is significant risk in this (a lot of analysts are warning to stay away or to hold (i.e Jefferies); I think they are wrong and at least I am backed up by JPM and Warren Buffett who just bought a stake in Monsanto), but if you have a diverse portfolio it is worth the risk.”
Now 200 words was not enough space to give too much reasoning. So I am going to go into some other reasons I think a buy is worthwhile for Monsanto.
Now of course you could hedge somewhat against the current risk levels by waiting until the Dow-DuPont prospective merger results. They are slated to get their decision before Monsanto-Bayer, and it somewhat would be a positive indicator if the former merger goes ahead, whereas if that one falls flat, some say it looks less likely that the latter will occur.
However, either situation personally does not bother me. Stepping back from a 5-year time frame, I am a “buy-and-hold” kinda guy; I look for companies that have the best prospective over an individuals lifetime because I invest for my retirement, not to make a quick buck. Let’s look at the worst case scenario- the merger fails to materialize due to regulators. Well, the thing about Monsanto is that they are a very nimble company. When its corn business sunk in 2014 they increased soybean output. When competitors gain a larger market share, they respond by selling licenses for their tech. When one patent expires, they gain a new one to market.
Also, let’s not forget; GMO’s are here to stay. Developing nations have been benefiting from them enormously (in Columbia for example, GM crops led to a reduction in water use, less CO2 output, and more money for the farmers), and as their wealth increases (the current trend), they will continue investing in companies like Monsanto. Further, the company itself can be seen to have a lot of confidence in itself as it has been buying back billions of dollars of shares (failing companies start to offload shares…like Enron did).
So that’s my opinion. If you are a mid-term investor, get bullish, invest in some Monsanto shares. If you are like me and buy stocks to hold long term, then load up baby!