Feeding the World… and Making Big Profits

Steve McDonald
by Steve McDonald, Bond Strategist, The Oxford Club


Evil incarnate: that’s what the anti-science movement has called Monsanto’s (NYSE: MON) efforts to lift farmers out of poverty and feed an ever expanding global population. Their genetically engineered seeds have been blamed for causing autism, cancer, allergies and a host of other issues including super weeds and super bugs.

MON has been the convenient worldwide whipping boy for many but, while the anti-folks have been raising cane, MON has been creating rice seeds fortified with vitamin A that saves lives in Asia. They have developed a pest-resistant cotton that has improved living conditions for farmers in India and drought resistant seeds to improve production on African farms.

Despite worldwide negative press, MON is projecting record worldwide seed volume this year and continued strength in its herbicide divisions. They are expected to see earnings jump 23% in 2013 and another 16% in 2014.

The CEO says the facts about food are so dire - his word, “dire” - that increased yields from genetically engineered seeds are an absolute essential. The earth will have 9.5 billion people by 2050 and almost a full 1 billion of them will suffer from hunger and malnutrition. That’s more than 10% of the world. When the real facts about the world’s food situation finally make it to the mainstream press, the current arguments about bioengineering will appear quaint, at best.

Food, fertilizer, farm land and seeds have been one of my central themes for years. It is a slam dunk and MON is at the center of what will be an ever-increasing, essential business for decades to come.

The CEO of MON has set a goal of doubling crop yields in the next 20 years. The world had better hope they are successful.

The last time I did a segment about MON I got a lot of very mean-spirited emails. So, if you email me with your criticisms of this segment and MON, please include your ideas that will serve as alternatives to MON’s solutions for feeding the world.

You must look at MON.

A Different Housing Play

The recent jump in housing has resulted in big gains in housing prices in some of the hardest hit areas: California and Florida. There have also been nice returns in plays associated with housing, like Home Depot.

But a lesser-known play may hold the best returns yet in this recovery and it is in an area that tends to lag a move in residential housing by about a year, commercial real estate. And it’s still cheap.

HD Supply (Nasdaq: HDS) was the commercial construction supply division of Home Depot and was spun off in 2007. It provides everything required by the commercial construction side of real estate and also has a focus on infrastructure needs.

Despite a rough start after the spin-off, private equity capital firms still own 60% of the stock, which speaks well of its potential. If the big money hasn’t cut and run, there have to be better things coming.

Analysts see this company gaining in market share and running as high as $42 per share from its current $23 and change. Its EPS estimates sit at about $0.72 a share in 2014 from a virtual zero last year with flat revenues but they are expected to increase by 10% next year.

HDS is cutting costs, paying down debt, investing $640 million in an overhaul of its technology, increasing the number of salespeople, expanding its e-commerce base and its inventory.

This is a faster growth story than HD or Lowes and has a lower valuation.

The real estate boom is for real and commercial hasn’t even started moving yet. Take a look at HDS.

The “Slap in the Face” Award: Quitting America

Here’s a real beauty! The number of people renouncing their U.S. citizenship surged to a record high in last quarter: 1,130 names appeared on the IRS’s list of deunifications. That’s almost twice the previous record and more than all of 2012.

The reason: tougher foreign tax laws and enforcement

Those who give up their citizenship because of taxes are even subject to an exit tax before they can give up their citizenship.

The U.S. is rare in that it taxes all money made in and out of the country, even if you are living abroad.

The tougher enforcement is the result of banks like UBS who assisted U.S. citizens in beating the foreign tax. I guess it’s ok to beat the foreign tax but not to help anyone do it.

One of the unforeseen results is that some foreign banks are refusing American customers. They don’t want to risk becoming ensnared in the same trouble UBS had with the U.S. government.

But, the real insanity of this situation is a case involving an expat living in Canada who owed an additional foreign tax of $250. The total legal and accounting bill to collect it: $40,000. And we paid it.

Isn’t that a slap in the face?

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