On Demand

Monsanto Is A Buy On This Correction


Shares of the $60 billion agricultural products provider, Monsanto (MON), are down 0.68% year to date after being up as much as 11.35% in June. This recent correction that brought down not just Monsanto, but the likes of Mosaic (MOS), Potash (POT), and commodities such as corn, soybean, and wheat, is setting up for a low risk buying opportunity on a retest of the 40-week simple moving average (SMA)  [see the chart below]. The 40-week SMA (also the 200-day SMA) has been an entry point for longer-term holders of the stock since November of 2012.


Crunching The Numbers

Despite trading at a P/E ratio of 18.90x (2015 estimates), Monsanto will still grow EPS by 17.6% next year making it a more attractive investment. Revenue growth will accelerate to 6.1% from 5.4% this year. On June 25, Monsanto reported Q3 EPS of $1.62 vs. the $1.55 estimate and revenue of $4.25B vs. the $4.37B estimate. They raised their FY14 EPS outlook to $5.12-$5.22 vs. the prior estimate of $5.02-$5.22. After the bell on August 5, they raised their dividend 14% to $0.49 from $0.43 (1.69% annual yield).  

The average analyst price target is currently $129 (3 hold ratings, 12 buy ratings, 0 sell ratings). Three recent analysts changes include: Berenberg Bank initiated the stock with a buy rating and a $141 price target, (7/16) Zacks maintained a neutral rating with a $127 price target (7/14), and Citigroup maintained a buy rating with a $146 price target (6/27).

Monsanto Options Trade Idea

Buy the Sep $115 call for $3.50 or better
Stop loss-$1.50
First upside target- $7.00
Second upside target- $10.00

Disclosure: I’m long the Sep $115 call for $3.38 each.

Read More

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Why Do You Want To Trade?  By Evan Lazaurus


Join In on this conversation, post a comment below.
Visitor - Thomas: What's the correlation between stocks like MON and POT to the underlying grains?
MitchellWarren: Hi Thomas. Check out this PerfChart on StockCharts that shows the correlation http://stockcharts.com/freecharts/perf.php?MON,$CORN,$SOYB,$WHEAT,MOS,pot

About the Author


Mitchell has been trading for more than eight years and is the founder of Options Risk Management. His experience includes equities, ETFs, options, futures, forex, and even bitcoins. He started by learning technical and fundamental analysis and in recent years has studied the importance of watching unusual options activity to see where the big money is positioning. Mitchell ran a premium trading subscription service from the start of 2013 through the end of 2014 where he provided market insight to 100+ members. Early in 2014, he started teaching on an individual basis via 1 on 1 equity/options mentoring. These customized courses help investors and traders learn technical/fundamental analysis, trading on unusual options activity, options basics to advanced strategies, options greeks, volatility, and positioning for earnings and other catalysts. Mitchell is also a regular contributor to TraderPlanet, Seeking Alpha, and TheStreet.com. You can follow him on Twitter and StockTwits for daily market commentary as well.


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