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Investing: Why Monsanto shares are falling

Also: Legg Mason Capital Management Value fund has been 'hit or miss' in recent years.

May 08, 2011|By Andrew Leckey

Question: Crop prices have risen so much. Why aren't my Monsanto Co. shares doing the same?

Answer: The world's biggest seed company has been firmly focused on farmers, who are crucial to its business.

Prices of agricultural commodities have risen sharply since last summer because of poor weather and strong global demand. But Monsanto, with an eye on its longer-term market share, has discounted the prices farmers pay for its patented, genetically engineered seeds.

The profit potential of Monsanto's seed business, however, will depend heavily on the degree of public acceptance and environmental scrutiny of genetically engineered food as well as commodity prices.

In Monsanto's latest fiscal year, which ended Aug. 31, its revenue sank 10% to $10.5 billion as the company's Roundup herbicide lost business to generic competitors. Net income for the year tumbled 47% to $1.1 billion.

Earnings for the fiscal second quarter were up 15% from a year earlier, but Monsanto said discounting and Roundup-related losses would weigh on profit for all of fiscal 2011.

Shares of Monsanto are down 6.3% this year after falling 15% last year and gaining 16% in 2009.

Analyst ratings on Monsanto shares consist of four "strong buy" ratings, five "buys" and 12 "holds," according to Thomson Reuters.

• Legg Mason Capital Management Value fund has been 'hit or miss'

Question: How about Legg Mason Capital Management Value for my portfolio? Good or bad?

Answer: This fund outperformed the broad stock market every year from 1991 to 2005, giving its contrarian portfolio manager, Bill Miller, a reputation as one of history's greatest fund managers.

His aura of invincibility quickly evaporated after he loaded up on financial stocks just as the bottom was about to fall out of the banking sector.

As a result, the $4-billion fund ranks near the bottom of its category of so-called large-cap blend funds for the last three, five and 10 years, with annualized losses of 6.1%, 6.6% and 2%, respectively.

In the last 12 months, the fund is up 13% but still underperforms its peers, whose total return averaged 20% during that period.

More than one-fourth of the $4-billion portfolio remains in financials. The largest stock holding, however, is AES Corp., which provides electricity in 28 countries.

"The pattern of performance, especially the past five years, has been hit or miss," said Bridget Hughes, mutual fund analyst with Morningstar Inc. "I don't think this is suitable as a core holding because it has always been a pretty risky fund concentrated in a small number of stocks."

Miller has more than $1 million of his own money invested, so he can feel investors' pain. He looks for low-cost stocks and is willing to venture into risky sectors and turnaround plays. The fund's biggest holdings can often represent a large portion of assets.

The fund charges a 0.95% "load" on purchases of fund shares and requires a $1,000 minimum initial investment. It last reported its annual expenses at 1.76% of fund assets.

Andrew Leckey answers questions only through the column. Write to him at yourmoney@tribune.com.

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