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My Favorite Holding Period For Monsanto Is Forever

For readers who are new to Monsanto (NYSE:MON), the firm is a provider of agricultural products for farmers. It offers corn, soybean, cotton, wheat, canola, sorghum and sugar cane seeds. The business is divided in two segments, the first being Seeds and Genomics. Monsanto uses genetic modifications to bring beneficial traits to the seeds. Without a doubt, the Roundup Ready crop is a well-known product.

The second division is Agricultural Productivity. Here, the company helps farmers to be more profitable by providing to them high-yield seeds. Monsanto offers a variety of unique and patented technologies. Consequently, the firm has a unique and durable economic moat, which allows it to generate an impressive return on invested capital year after year. With its quasi-monopoly, Monsanto is extremely profitable, and is one of my favorite companies.

In my opinion, Monsanto is a little expensive at the actual price of $87 per share. On the other hand, Monsanto is a money-making machine. In my Monte Carlo simulation, I made some basic assumptions about the risk-free rate and the market risk premium. I considered a risk-free rate between 3% and 3.5%. (Currently, the yield on a 30-year Treasury bill is around 2.82%, so my range might look too high, but I expect a rate hike in the coming months. Moreover, I truly believe that this rate hike is fully priced in.)

According to Aswath Damodatan, the market risk premium is estimated at around 6.28%. Consequently, I used a market risk premium between 6% and 6.5%, which, in my mind, reflects the reality.

Indeed, it is more complicated to estimate the beta. Again, I decided to use a range for this variable. According to the graph below, the beta reached a minimum of...