Should You Dump Monsanto (MON) Stock From Your Portfolio?

On Aug 16, 2016, we issued an updated research report on premium agro-chemical firm Monsanto Company (NYSE:MON) . The company, along with its subsidiaries, is one of the leading providers of agricultural products globally.

Bearish Factors

Commercial rivalry in the global seeds, traits and agricultural chemical industry is significantly increasing. Stiff competition exposes Monsanto to risks of market share loss. This is because the successful launch of a new product by any rival can substantially lower the market value of the existing products offered by the company.

In order to stay ahead of the competition and lower the bargaining power of prospective end users, Monsanto heavily invests in research & development to fortify its existing product portfolio. However, such investments add to the existing debt burden of the company and older technology often become obsolete within a limited time span. Moreover, international operations of the company are subjected to several economic, political and environmental headwinds.

Also, Monsanto’s cost and sales are highly sensitive to commodity price fluctuations. Economic slowdown in major emerging markets such as China have lowered demand for agricultural products and hence, weighed on the company’s market prices in recent times. Weak agro products prices are also weighing over Monsanto’s revenues and margins. Given that incomes of farmers are directly related to agro-product prices, lower prices are reducing farmers’ income and adversely affecting their seed and chemical product purchasing decisions, thereby hurting Monsanto’s top line and bottom line.

Scope for Growth

The Zacks Rank #4 (Sell) stock has undertaken certain initiatives that alongside the favorable market conditions might partially offset the impact of the negatives. For instance, rise in global population, increase in the proportion of middle-income group consumers and improving individual dietary habits are expected to enhance agricultural demand and in turn, sales of farming products offered by Monsanto. Moreover, the company is trying to improve its liquidity position through cash management and aims to generate free cash in the range of $1.6–$1.8 billion in fiscal 2016.

Stocks to Consider

Some better-ranked stocks in the industry include Barrick Gold Corporation (NYSE:ABX) , First Majestic Silver Corp. (NYSE:AG) and Axiall Corporation (NYSE:AXLL) . All the three companies currently hold a Zacks Rank #2 (Buy).

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