Monsanto Beats the Street, But Don't Be Too Impressed

The third-quarter earnings season will officially begin after the market closes today when Alcoa (AA) reports its earnings. Let me caution you to not expect much from Alcoa. I have it rated as a Sell at Portfolio Grader.

We still have a few earnings reports coming in from “off-cycle” stocks, meaning companies whose reporting period ending in August instead of September. Yesterday, I noted Mosiac’s (MOS) off-cycle earnings report and said that it’s too early to go into fertilizer stocks.

Today, we got another off-cycle report from Monsanto (MON) which is the world’s largest seed producer. While the company beat earnings, the lackluster guidance leads to conclude again that it’s still to early too go shopping in the agriculture sector.

I used to have Monsanto rated as a buy but I downgraded the shares to a Sell earlier this year. For the August quarter, Monsanto earned two cents a share which beat Wall Street’s forecast of just a penny a share. The company however reported a net loss due to restructuring costs. Monsanto also pegged this year’s fiscal earnings at a range between $3.10 and $3.30 a share. That’s less than Wall Street’s consensus which is not a good sign.

There are some gems in the ag sector. For example, I have Chile’s Sociedad Quimica y Minera (SQM) rated as a Strong Buy. We added SQM to our Blue Chip Growth Buy List earlier this year and it’s already given us nearly a 40% profit. The company is due to report earnings three weeks from yesterday, and Wall Street expects its earnings to double! This is a good time to add the stock before the coming earnings report.

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