The Ethanol Bubble?
Monsanto stock hit an all-time high Tuesday going into earnings. Turns out earnings reflected a fantastic 2007. Sales hit a record $8.5 billion. Corn seed and traits sales rose 76% in the fourth quarter alone! The company reported a loss for Q4, which I'm told is normal, since they use that quarter to build up seed inventories -- like a really big squirrel storing nuts for the winter.
But Monsanto disappointed analysts in forecasting earnings growth for 2008. It only expects earnings to grow 10-20% (which, gee, you'd think is good). Analysts were looking for at least 25% earnings growth. Morgan Stanley had a best case scenario of 50% growth.
Now, traditionally Monsanto low-balls its full-year forecast, but does it see slowing growth? Are we missing something? The CEO says the company has to grow through market share. That's his biggest focus -- bigger than whether total acreage grows. Is that just being conservative or is it being pessimistic?
Analysts seem to think there's nothing to worry about. The company has plenty of steam left, despite the disappointing earnings projection.
From Goldman Sachs: "Indeed, MON remains the undisputed leader in the ag/biotech space, and we believe that the product pipeline is sufficiently robust to keep investors excited about the mid- to long-term opportunity."
From Morgan Stanley: "To be clear, given that there is absolutely no change in our expectations for F2008, we perceive any near term weakness as a buying opportunity."
From Bank of America: "We are not overly troubled by the lower than expected range since management has a history of 'over-delivering' vs. conservative guidance."
Maybe it's me, but with some ethanol producers now at risk of going bankrupt (despite a government subsidy), the fuel's inability to be transported through pipelines, the lack of ethanol stations in car-hungry California because it has to be trucked or trained here, Monsanto's sky high stock price, and all the analysts saying disappointing guidance is "OK," -- well, let's just say I'm going to sit back and watch this farming story unfold.
But I've learned to never underestimate the power of the corn lobby. Name me one processed food/beverage that doesn't have corn syrup in it. What corn has done for food, it may do for your car if it's the last thing farmers accomplish!
More Suggested Names for the Farm Report
Fields of Dreams
Jane Wells, RFD (funny!)
Mother Earth's News
"Wells FarmGo" (get it? heh, heh)
Jordan Belfort Update
My profile of convicted stock broker Jordan Belfort which has been airing on "Business Nation" has gotten quite a bit of response from you. I also blogged about Belfort last Wednesday and the many ways he defrauded investors at his firm, Stratton Oakmont, in the '90s.
Tony F. was a broker back in the day at an office where "there were so many 'Jordan Belfort' types in that office, it was scary":
"Overall Mr. Belfort's story is not unique and any book plans to be made into a movie would be a travesty to all investors that had invested with firms like Stratton. It's hard enough to get clients, but during that period of time, people like Mr. Belfort made it increasingly difficult to get new business in the door since most investors had a 'bad taste in their mouths' from dealing with these firms."
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