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Monsanto (MON) Faces Macro Risks: Dump the Stock Now?

On Apr 11, 2016, we issued an updated research report on premium agro-chemical firm Monsanto Company MON. The company, along with its subsidiaries, is one of the leading providers of agricultural products globally.

Bearish Outcomes

Monsanto’s business is highly sensitive to the climate-related fluctuations in the agricultural industry. Unfavorable climactic conditions lowered the company’s top line by 12.8% year over year in second-quarter fiscal 2016. Such industry specific headwinds might further affect the company’s top line in the near term. In addition, U.S. currency appreciation is eroding the value of Monsanto’s international revenues and margins.

Also, operational hazards, changes in economic conditions, governmental policies and trade restrictions in foreign economies also put the company’s international business at risk. Moreover, the intensely competitive market poses the risk of market share loss to the company. Moreover, the enormous time and expenses involved in the development of herbicides and biotechnology traits raise the prices of these products, exposing the company to price competition from local manufacturers.

Slight Scope for Growth

The Zacks Rank #5 (Strong Sell) stock has undertaken certain initiatives which along with the favorable market conditions might partially offset the impact of the negatives. For instance, rise in global population, increase in the proportion of middle-income group consumers and improving individual dietary habits are the aspects that are expected to enhance agricultural demand and in turn, sales of farming products offered by Monsanto. Meanwhile, the company is trying to improve the liquidity position through cash management and aims to generate free cash within the range of $1.6–$1.8 billion in fiscal 2016.

Stocks to Consider

Some better-ranked stocks in the industry are Limoneira Company LMNR, Syngenta AG SYT and Alamos Gold, Inc. AGI. All the three stocks hold a Zacks Rank #2 (Buy).

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
SYNGENTA AG-ADR (SYT): Free Stock Analysis Report
MONSANTO CO-NEW (MON): Free Stock Analysis Report
LIMONEIRA CO (LMNR): Free Stock Analysis Report
ALAMOS GOLD INC (AGI): Free Stock Analysis Report
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