The following was done a while ago. Why I have not followed it in last two years, and missed this great agri boom? Because I followed all the hypes: Home Inns, Heelys and Crocs 🙁
Dec. 14, 2005
Dear Mr. John,
Both Monsanto and Sygentia are leaders in the agriculture business. Their financial fundamentals are solid. Both are profitable and have an R&D expense of about 10% of their annual sales. Since we are long term investors, we will look at the following ratios for year 2004 at first.
PE ratio: Monsanto’s 36.4 is significantly higher than Sygentia’s 6.3, which means the investors are more optimistic about Monsanto’s earning growth. We need to examine the expected growth is organic or will be materialize.
Dividend Yield: Monsanto’s 1.9% vs. Sygentia’s 6.5%, there are also a big gap here. It seems Sygentia is more attractive in this aspect.
Book Value (per share): Monsanto 19.50 (share price 36.03); Sygentia 53.43 (share price 20.90). Sygentia actually have more book value than share price. Again there is a safety factor for Sygentia.
It appears to me Sygentia is a better investment choice for us at this moment. Please note the ratios I mentioned above should be used as a starting point to making final selections of the portfolio. We should also look at the market conditions, foreign exchange rate, regulatory risks, and customer satisfactions.
PS: I examined the closing price of both stocks as of 14 December 2005, Monsanto is $ 75.63, Sygentia is $ 23.46. If we made the investment choice of Syngentia at the beginning of year 2005, it’s obviously we are not doing as well as Monsanto investors. But the investment is long term activity we should look beyond one year. We should also examine our portfolio from time to time, readjusting it as the company fundamental and market conditions change.
Disclosure: I started a very small position on SYT. Better late than never. No surprise it dropped after I bought it, remember Major’s rule No. 1?