An Industry Leader Trading at a Sizable Discount

Jeff Stafford: We think Monsanto (MON) is the undisputed leader in seeds and genomics, which is more akin to the pharmaceutical industry than other agriculture markets. The firm has built a wide economic moat on the back of its intangible assets in seeds, both from biotech traits, which are licensed broadly to competitors, and from Monsanto's best-in-class seed-breeding operation. The company has shown the ability to raise prices, even in years when corn and soybean prices drop, primarily through introducing higher-yielding seeds and new biotech traits.

Falling crop prices and an ill-advised pursuit of Syngenta (SYT) have driven Monsanto's stock down to attractive levels. With the value-destructive Syngenta deal off the table, we think the market will eventually focus on Monsanto's ample standalone growth opportunities. Our long-term view of the company is bolstered by our forecast for caloric intake in emerging markets, which will put stress on crop-yield improvements globally and should play to Monsanto's strengths.