The Mississippi River has overflowed its banks and almost non-stop rain has swollen it to an epic size. Memphis barely survived. The land south of there is experiencing serious trouble. We will see exactly how hard the lands along the southern Mississippi are hit as the weekend unfolds. The damage to crops will be in the billions of dollars. The area flooded will be in the millions of acres.
From the pictures of the Morganza Spillway, there is no question they will have to open it soon. Then the entire area south of it will be flooded. That’s a large chunk of the farmland in Louisiana. Arkansas has more than 1500 square miles flooded. They blasted a levee to flood Missouri farmland to avert the flooding of Cairo, Illinois. Mississippi (the state) has considerable flooding. Estimates are for total flooding there to be more than 2100 square miles. In fact, the Mississippi River is backing up the Yazoo River, and it is flooding too. I don’t know the overall totals yet, but this flood is being compared to the epic flood of 1927 (in other words it’s a once in a hundred years phenomenon). The crop damage will be extensive.
Eventually the floodwaters will subside. The farm lands may need some work, but they will go back to being farm land. The farm lands will need to be re-planted. For a shortened season, they will need good seed and likely good fertilizer. The two US companies most famous for their seeds are Monsanto (MON) and DuPont (DD). They should see a nice uptick in sales from this disaster. In addition they may get secondary business from farmers elsewhere in the US and the world who will be trying to take advantage of the now larger shortage in crops. Since the world’s grain stores were already short due to the many disasters last year, the supply will be still shorter.
Another factor in all of this is that the flooding will cost economies along the Mississippi huge amounts of money each day. When the port of New Orleans closed down due to an oil spill in 2008, the estimated cost of the port shutdown was $275M/day. This is just one of the instances of economic impact. The flood may have a negative effects on the US equities markets. With this in mind, investors will want to be a little defensive.
Both of these companies meet that need. The are both solid multi-national large cap names with great fundamentals. DD has beat estimates each of the quarters since its still relatively new CEO has been at the helm. In addition, its chemicals business has benefited recently from the low natural gas prices. Monsanto’s performance has been somewhat less sterling, but it is a fundamentally strong stock.
The table below contains a lot of the relevant fundamental information about the two stocks. The data are from Yahoo Finance and TD Ameritrade.
| Stock | DD | MON |
| Price | $52.91 | $63.79 |
| 1 yr. Analysts’ Price Target | $63.18 | $75.17 |
| PE | 14.79 | 27.47 |
| FPE | 12.16 | 18.99 |
| Avg. Analysts Recommendation | 1.9 | 2.5 |
| Price/Book | 4.73 | 3.12 |
| Price/Cash Flow | 10.59 | 17.92 |
| Short Interest as a% of Float | 0.90% | 1.00% |
| Beta | 1.50 | 0.82 |
| Cash per Share (mrq) | $5.19 | $3.74 |
| Market Cap | $49.14B | $34.19B |
| Enterprise Value | $57.71B | $34.45B |
| 5 yr. EPS Growth Estimate per annum | 10.35% | 15.13% |
| Total Debt/Total Capital (mrq) | 52.07% | 16.11% |
| Quick Ratio (mrq) | 1.53 | 1.24 |
| Interest Coverage (mrq) | 18.02 | 74.25 |
| Return on Equity (ttm) | 36.29% | 11.64% |
| EPS Growth (mrq) | 22.91% | 16.64% |
| EPS Growth (ttm) | 36.72% | -2.73% |
| Revenue Growth (mrq) | 13.74% | 6.14% |
| Revenue Growth (ttm) | 17.46% | 2.32% |
| Annual Dividend Rate | $1.64 | $1.12 |
| Gross Profit Margin (ttm) | 26.85% | 49.42% |
| Operating Profit Margin (ttm) | 11.27% | 17.56% |
| Net Profit Margin (ttm) | 9.89% | 11.93% |
Each stock above has its good points. MON has the lower price/book, the lower total debt/total capital, and the higher 5yr. EPS growth estimate. However, it trades at higher PE and FPE multiples. Plus its performance of late has been spottier than DD‘s. DD has consistently beaten EPS estimates for 2+years. DD has a higher dividend. In its own way each stock is a worthy investment.
The charts below show some of the technicals of each stock.
The 1 year chart of DD:
The chart of DD indicates the stock has very strong price performance. Exceeding expectations continually can have that effect on a stock. The fast stochastic and the Williams %R both indicate the stock is currently oversold. The overall market is in a very uncertain state, but the stock itself can be bought at this time. A check on the overall market, as viewed via the SPY chart below, will give you an indication of how strongly you may wish to consider the overall market.
The 1 year chart of MON:
The chart of MON indicates it has been in a downtrend for the last several months. Recent events may make it more of a buy, but I would feel better about buying it after it had achieved a more discernible upturn. The fast stochastic and the Williams %R both indicate that MON is oversold. On that basis it can be bought. I would be more hesitant to buy MON at this time than DD, but you could start to average in if you are daring.
The 1 year chart of the SPY:
The SPY chart indicates it is a strong, but weakening entity. The fast stochastic and the Williams %R both indicate that SPY is approaching oversold territory. Chart theory would indicate that it may go farther toward oversold territory before it bounces upward. According to this chart, it may be best to wait a day or more before investing in either MON or DD.
The USD Index has been rallying. It may rally to 77-78 or 79-81. If it does this, it may cause a significant unwind of the USD carry trade. This in turn may cause the equities markets and commodities to sell off. This is a possible negative to consider before buying either DD or MON. It probably means you want to average in at most.
Finally the southern Mississippi River is not supposed to crest until Tuesday. This means it may be doing significant damage early next week. Even though Monday is known as "Mutual Fund Monday", it may be a down day given the EU credit crisis, the SPY chart, the US debt ceiling crisis, and the further bad problems to come in the Mississippi disaster.
Good luck trading.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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