Monsanto faces a difficult public relations challenge
Monsanto (NYSE: MON) is in a sticky situation. It needs to protect its intellectual property but at the same time not look like a big corporate bully that’s picking on the little guy.
In its most recent patent dispute, with a grain-elevator co-op in Missouri, Monsanto won. The co-op agreed to stop saving seeds and will also pay an undisclosed sum of money, but Monsanto’s not taking the cash. Instead, the money is going to fund college scholarships for local students with an interest in agriculture. Nice touch, Monsanto: Make the co-op hurt where it counts, but don’t look like the bad guy by taking the money.
Monsanto has filed about 125 lawsuits to stop patent infringement, and it has been able to avoid court in all but eight of those cases, winning those eight.
Perhaps more than any other industry, seed makers have to defend their intellectual property because their products are so easily reproduced. Monsanto and the rest of the agricultural biotech companies have to walk a fine line. They have to make sure that farmers understand that they’ve pumped hundreds of millions of dollars into developing the seeds, and therefore farmers can’t just buy them once and propagate them. But they’ve got to do it in a way that doesn’t upset their customers.
So far, so good, Monsanto.
Ask the Fool
Q: What are stock “multiples”? – K.B., Sioux Falls, S.D.
A: “Multiple” is just a fancy term for the price-to-earnings ratio (or P/E). In general, a multiple is simply the result of dividing a stock’s price by something, such as earnings (via the P/E ratio) or revenues (via a price-to-sales ratio). Imagine Scruffy’s Chicken Shack (ticker: BUKBUK), a company trading at $40 per share. It’s expected to earn $2 per share this year, so its P/E on this year’s earnings is 20 (40 divided by 2 equals 20). You might refer to it as trading at an earnings multiple of 20.
If you read analyses of various companies, you’ll see references to price-to-sales multiples, book-value multiples, cash-flow multiples and more. It’s instructive to compare a company’s various multiples with those of its peers, to see whether its stock appears to be undervalued or overvalued.
Q: At an annual shareholder meeting, a “poison pill” strategy was mentioned. What’s that? – C.B., Monticello, Minn.
A: Companies sometimes employ a poison-pill strategy to avoid being taken over. In one of two main formats, shareholders (but not a would-be acquirer) are permitted to buy more shares of company stock at a discount. This dilutes the value of the stock, including those shares held by the acquirer, making a buyout more difficult and expensive to pull off. Another poison-pill tactic is to permit shareholders to buy the would-be acquirer’s stock at a discount in the event of a merger.
Shareholders have sometimes protested poison pills because they dilute the voting power of shares and because occasionally a takeover would actually be good for the company and shareholders. Some companies with poison-pill plans have gotten rid of them.
My dumbest investment
My dumbest investment move was that after buying retailer TJX in 1999, I got impatient soon after and sold, in order to buy more of Texas Instruments. Well, Texas Instruments didn’t grow all that quickly, but TJX sure did. My mistake was selling. Patience is a virtue, and the lesson is clear: If the company was good enough to justify a buy, don’t sell if the fundamentals are still solid. Another dumb move was buying into a few IPOs. They promptly went south. I consider those losses the price of tuition at “Investment U.” – D.L., online
The Fool Responds: Investment U. can be costly, but you can gain by reading widely and learning to avoid many mistakes. Texas Instruments has averaged 7 percent annual growth over the past decade, while TJX has averaged 15 percent. Meanwhile, IPOs (initial public offerings, when companies first sell stock in themselves on the market) are notoriously risky, frequently surging before you can buy in, and then falling back. It’s often best to give new stock a year or so to settle down before buying.