A Good Seed at This Wide-Moat Firm

Jeff Stafford: Having essentially created the biotech seed market decades ago, Monsanto operates in the industry with a wide economic moat. The company's moat source is intangible assets. Monsanto owns a broad portfolio of patented biotech traits that allow it to charge premium pricing.

Over the years, Monsanto has consistently poured more money into R&D spending than competitors, allowing the firm to maintain its edge. We also see Monsanto's more conventional seed and breeding operation as vital to the company's moat. This is an area of the company that doesn't get as much interest from investors, but we think it is equally important.

Monsanto, year-in and year-out, modifies its genetic material to produce seeds that out-yield the competition. Signs of Monsanto's moat are readily apparent in the market. For example, competitors broadly license Monsanto's traits. Both DuPont and Syngenta have chosen to license Monsanto's next-generation soybean technology, as opposed to competing head-to-head.

We think Monsanto will maintain its competitive advantage for years to come. At the moment, Monsanto looks fairly valued, but this is definitely a company we would want investors to keep an eye on if the stock price were to drop.