“Operation Global Rescue” Stocks — Breakaway Investor

By Travis Johnson, Stock Gumshoe, September 8, 2008

On a day when the faces walking by my house on their way to work at Fannie Mae headquarters are looking a little bit glum and uncertain, let’s stroll over to an entirely different section of the investing neighborhood.

This is the subject line that has been filling up my inbox of late:

“Controversial ‘Relief Fund’ Makes BIG MONEY Payouts to Charitable Americans!”

This is another ad for a newsletter we’ve looked at quite a few times before, but things have changed a little bit. BreakAway investor was for quite a while edited by Andrew Mickey, but apparently a few years of failed teaser stocks (and, I imagine, some weak performance by the newsletter as a whole) has led to a changing of the guard. Christian DeHaemer, who edits or contributes to many other Taipan newsletters (Red Zone profits, Crisis Trader, Material Profits, etc.), is now at the Breakaway Investor helm. Will his picks do any better?

(I don’t actually know anything about why Mickey left, just guessing — he’s still in the business and is now investment strategist for a much smaller organization called Q1 Publishing.)

This time around, the promise of the ad is a bit novel — they tell us that you can do well by doing good. That you can contribute to what they call “Operation Global Rescue” by investing in this “Global Relief Fund” and help feed the world, and also get rich. You don’t have to read between the lines too much to notice that, of course, they just made up the terms “Operation Global Rescue” and “Global Relief Fund” — what they’re talking about is investing in the companies that help modern agriculture run. I guess you can make the argument that these investments will help to feed the hungry if you like, though they do go a bit aboveboard comparing investing in Potash and John Deere to making a charitable contribution.

And they make you feel like you can be “controversial” in making money by doing good — which, of course, conjures up images of big returns (why else would there be a “controversy?”).

If you want to save the world or feed a family, send your money to Heifer Project International or whatever your favorite charity might be … but perhaps you can still make some money with agricultural stocks, and have more money to fuel your generosity. Let’s have a look:

“‘Operation Global Rescue’ Stock #1: Feeding the World!”

Here’s an excerpt from DeHaemer’s spiel:

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“If you could only own one stock for the next five years… this would be the one. Kiplinger’s calls this company a “real growth stock”… .

“This company is a leader in agriculture biotechnology. They produce seeds and herbicides …

“According to a survey by Thomson Financial News, their earnings are expected to grow 37% annually over the next three to five years.

“And they can charge a pretty penny for seeds that grow corn that is resistant to pests.

“In fact, in June this company launched a new push to help feed the world by funding wheat and rice research projects, handing out seeds to African farmers and pledging to double corn and soy yields over the next 22 years.”

We get some specifics, too, thankfully — so the Thinkolator needn’t go hungry today.

Net income grew 107% year over year in the last quarter.

Profit margin is 18%.

Trades at a PE of about 30.

Big mutual funds have been adding to their positions.

DeHaemer doesn’t softpedal the promise — he sees 250% gains for this one, and says that you should … “put this company in your portfolio now. It’s the buy of the decade — and you don’t want to miss out!”

So what is it?

Well, as you may well have guessed if you’ve spent any time looking at ag stocks, this is …

Monsanto (MON)

Monsanto is essentially a biotech company that focuses on seeds — they develop genetically engineered seeds that can grow in harsh conditions, or that won’t be affected by their herbicides, or otherwise will help to increase yields, save money, or allow farming in areas that are not particularly suited to it.

In the big picture, I think technology like this is critically important — but there are certainly folks who disagree, some quite vehemently. Just picture the “frankenfood” protests in any country in Europe over the last ten years, there are some places that just don’t want these seeds, or any crops grown with them.

That said, Monsanto is making an awful lot of money, and I can’t imagine that we’ll be able to effectively feed a growing population without more and better genetically engineered crops, though of course there’s always a risk that this gets pushed too far and we all start growing rabbit ears or having our toenails turn green. Personally, I see this as primarily an extension of the hybridization that farmers have been spearheading for hundreds of years, and that my recent ancestors worked on every day on their corn and soybean farms in Illinois. On the other hand, stuff like growth hormones in dairy cattle, which Monsanto was also involved with a few years ago (and may still be, I don’t know), give me the heebie jeebies. Didn’t say I was consistent, just sharing my opinion.

But my personal feelings about “frankenfood” don’t mean much — what’s the investment potential for Monsanto?

Well, DeHaemer is clearly not alone — lots of folks think the promise is huge here. Morningstar pegs the fair value at $145 and thinks you should consider buying at these levels (it’s at $107 before the open today, looks like it will probably open higher than that).

The news has been fairly thick for Monsanto lately, too — they got permission to export their latest “Roundup Ready” Soybeans to China just last week, and they got an upgrade on Friday by Credit Suisse, along with plenty of articles recently on what a value these shares represent (one from from Investopedia here, just to get you started). Kevin Kerr, who has made a name for himself with some great picks in various commodity sectors over the years, also thinks Monsanto is a good bet.

Keep in mind, if it’s this “operation global rescue” stuff that appeals to you, that Monsanto is in the act of actively preventing the most basic farming practice, seed saving. There’s not necessarily anything wrong with that — Monsanto has to protect their intellectual property and patents, and the only way for them to do that is by preventing farmers from making their own seed, so that they can force them to buy seed from the owner of those patents, but it does make them look bad on occasion when they have to sue farming cooperatives. And it does mean that as their technology spreads around the world, it may be tougher to keep a handle on that intellectual property — if you think it’s hard to keep a teenager from uploading a CD to bittorrent, imagine how hard it is to make sure farmers don’t let plants reproduce themselves. I’m not an ag expert — I remember the Llama that my second cousin owned much better than I remember what his corn fields looked like — this is just my personal take on one of the company’s challenges.

If you’re interested in this part of the agricultural space — seeds and herbicides and the basic inputs for agriculture (except fertilizer), there are also a few other places you can look. The closest competitor to Monsanto is Syngenta (SYT), which is growing more slowly and doesn’t have some of the powerhouse products like Monsanto does (Roundup in particular), but is much cheaper and in the same agricultural biotechnology business, or you could also look at a diversified and perhaps more stable company that has a big seed and agricultural protection (read, pesticides and herbicides) business like DuPont (DD), which is relying on its ag business for growth in some ways but is cheaper still (thanks in part to cost pressures in their basic chemicals businesses).

Most ag companies have had some big moves up in the last couple years, but I do like that the seed companies at least rely less a massive price climb than have the raw fertilizer companies, the Potash Corps and Mosaics of the world, and it is nice to have a product that is patent protected, not just a commodity whose price can swing wildly.

And don’t worry, you’ll get the fabulous opportunity to read some Gumshoe chatterboxing about the several other ag companies touted as the investments for this “Global Rescue Fund,” too — I’ll be looking at them soon.

But it’s your money … what do you think of Monsanto?

P.S. I do actually live just a few blocks from the palatial Fannie Mae headquarters … I normally see the employees all come swarming out for lunch in the neighborhood eateries with lanyards around their necks and smiles around their faces. I wonder if the bars will be a little fuller at lunchtime today (not that I would know), and I hope there weren’t as many employees who had their full retirements socked away in FNM stock as there were at Bear Stearns or Enron. I know the news crews are certainly gumming up traffic quite a bit as the stern reporters do their standups in front of the building, I’ll let you know if the circus gets exciting in these parts.


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Bob
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Bob
September 8, 2008 10:04 am
Herb Walker
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Herb Walker
September 8, 2008 10:25 am

I read recently (I wish I had kept the link) that in the southern U.S. there is a new weed running wild because it is immune to Roundup.

MON could have future problems if nature produces more weeds like that.

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A. Nony Mouse
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A. Nony Mouse
September 8, 2008 10:41 am

http://www.reuters.com/article/pressRelease/idUS63085 23-

The above is a link to a news release about the patent sharing agreement between Monsanto & Syngenta. RE; Round-up

I think I would rather go with Syngenta (SYT) for a couple reasons:
1. For some reason, although the occupy the same ag niche, Syngenta doesn’t have the same Frankenfood rep as Monsanto. This is especially true in Europe, Asia and the Mid-East.

2. Syngenta has done extensive research in mapping the rice genome. Sure there is a growing middle class world-wide but there are a heck of a lot more poor people, to whom rice is the major diet component.

3. Syngenta is about to open a major Ag research center in China. Monsanto is big in Latin America but no so much in Asia.

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Steve
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Steve
September 8, 2008 11:14 am

As far as Roundup (glyphosate) tolerant and resistant weeds, they will definitely be a problem in the future unless farmers either rotate to other herbicides or tank-mix Roundup with other products.

Here’s my theory on why Roundup Ready crops have been banned in Europe: It’s really nothing more than protectionism in the name of food safety, since Monsanto (an American company) was the first to develop herbicide tolerant corn, soybeans and cotton. If one of the huge European crop protection companies (Syngenta, Bayer or BASF) had been first to market, I have a feeling the European Union’s stance might have been completely different.

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Tom Beach
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Tom Beach
September 8, 2008 11:15 am

Monsanto is messing with the world’s food supply via genetic manipulation and seed stock monopoly. Their motive is profit. They do not care about our health or that of our enviroment. If they did they would not creat seeds that become plants that can and do destroy bees and invade organic farm fields. They actually sue and take farmer’s lands because their (Monsanto’s) seeds fall off trucks and grow on farms that did not plant them. The farmer did not pay for the priveledge of using Monsanto’s seeds!!. Monsanto is patenting every seed that exists in the U.S. and world seed banks just so they can profit whenever someone uses one of them. Patenting seed is patenting life. That is criminal in my book and really scary as hell.
Patently life forms so you can profit from anyone growing it is a monopolization of life. Monsanto wants to collect from every farmer everywhere who grows any crop at all. They want to sell engineered seed or any seed that they have a patent on (just about all seeds available to patent). They have proved they can enforce thier patents because they already have. They take land from farmers who can not pay for their royalties.
These Monsanto people are trying to monopolize the food we eat. Think about that. They can then charge whatever they want. Pay or starve.
Whoa, there! Can that be? Yes, it can and is.
The money they make is bankrupting farmers and indirectly causing food prices to increase. This insures that many people will not eat.
I consider this company to be evil. Not just greedy. Evil. Inform yourselves about this company more fully. See the Future of Food video.

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ProBhi
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ProBhi
September 8, 2008 11:43 am

Hey Folks!
One important point about Intellectual Property rights for AG biotechs like Monsanto. They have developed a technology called TERMINATOR which actually does not allow farmers to replant the seeds from the current harvest. The seeds are genetically modified to become infertile.
This forces farmers to buy seeds every year. Thers been a big furore in countries like India where similar products have forced farmers to buy from Monsanto.

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emmanuel
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emmanuel
September 8, 2008 12:18 pm

In spite of good results Monsanto is sitting on a potential time bomb.
There are many questions ethical and others that linger and that the company is pushing under the rug
Monsanto and other biotech companies are vulnerable to a problem that will tank their stocks.
They are in a race against bad publicity
There is a strong consummer movement in Europe and in the US against GMOS and there are independent studies that shows serious problems relating to biotech foods.
Monsanto is trying to hush It.
I do not want to take that kind of risk.
All that shines is not always gold….

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boband
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boband
September 8, 2008 1:02 pm

Roundup itself is no longer under patent…I believe. There are certainly lots of generic versions. Roundup tolerance is something that is present in nature…many weeds are becoming tolerant to it, or more correctly the use of Roundup is providing selection pressure for glysophate tolerant varieties.

This is true of every ag chemical as far as I know. And glysophate is one of the safest and best there is…still. In the “good old days” using atrazine to produce corn was very much more scary than using roundup.

Genetically modified crops are probably one of the safest technologies ever invented by man because all you are doing essentially is producing different natural substances. Moving genes around from one species to another is generally playing with proteins, and personally whether I get a particular protein from a tomatoe or a chicken doesn’t really matter to me.

The scare tactics and fear in the above posts are typcial of modern “Luditism” and “ChickenLittleism”.

The issue of seed use and terminator genes, etc. is not a lot different than trying to protect music on the internet. And there are always alternatives to using Monsanto seed…just use one of the thousands of non-Roundup ready varieties.

By the way…I have nothing to do with any of the companies, etc. in this discussion, nor with the industry. I am a retired agricultural real estate appraiser.

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Ginny
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Ginny
September 8, 2008 4:25 pm

Although the FDA and the food industry claim GMO foods are safe, properly tested, and necessary to feed a hungry world, it is just not true!

Many consumers mistakenly believe that the FDA “approves” GM foods after rigorous and in-depth, long-term studies. In reality, the agency has absolutely no safety testing requirements. Instead the agency relies on research done by Monsanto itself. Monsanto’s research is designed to avoid finding problems.

It’s also easy to understand the FDA’s industry-friendly policy on regulation of GMOs when you consider the cross pollination occurring between FDA regulators and the companies they are supposed to regulate.

The original person in charge of developing the FDA’s policies on GMOs was a former Monsanto attorney, who later returned to Monsanto as their vice president.

The FDA has claimed it was not aware of any information showing GM crops were different in any meaningful way, from non-GMO crops… and therefore didn’t require rigorous testing. But over 40,000 internal FDA documents, made public by a lawsuit, show that this was a complete lie.

The overwhelming consensus among the FDA’s own scientists was that GM foods were quite “different” and could lead to unpredictable and hard-to-detect allergens, toxins, new diseases and health problems.

Consider this… in a Philippine village, residents woke up one morning to a “really pungent smell” coming from a nearby cornfield. “It was like we were breathing in pesticides.”, said one villager. When one person ventured into the corn field, his face began to swell and he started having trouble breathing. This occurred at the time of year when the corn (containing the Bt-toxin from Monasanto) was pollinating. Shortly afterwards, other villagers began experiencing fevers, skin, respiratory and intestinal symptoms, starting first with those who lived closest to the cornfield and then spreading to those living further away. A total of 96 people reported getting sick. In addition, 9 horses, 4 water buffalos, and 37 chickens died shortly after feeding on GM corn. All villagers (39 total) who agreed to participate in blood testing showed an antibody response to Bt-toxin.

Ask yourself why corporations spreading GMOs are so secretive and why they’ve spent hundreds of millions of dollars to keep us from even knowing which foods contain GMOs. They don’t want us to examine the shoddy science, the suppressed evidence, and, most of all, the real health risks that GMOs present. Read “Genetic Roulette” or visit seeds of deception on the internet to find out the indepth story of GMOs. Again and again this planet is being reminded that we cannot mess with mother nature without dire consequences.

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destry
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destry
September 9, 2008 12:19 am

On a more positive note….Even the relatively small list of agriculture companies above, are daunting as to investment choices….
I personally prefer to invest in one company,for example; And in the industry itself, t5houg, in this case; Van Eck Agriculture ETF…A very diverse portfolio of Seed, fertilizer, farm machinery,etc. An excellent long-term hold.
Symbol: (MOO)

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