Buy Good Value and/or What Other People will Like?

[Evan]

I am sort of swamped, but I'll try to give a quick answer to your questions.

Basically they're moving from mainly produing herbicides to mainly producing genetically altered seeds, which is MUCH higher margin. In 2010 they are releasing a corn seed that can grow without irrigation and yield 36 bushels/year on infertile land. There are other products in the pipeline (all in stage 2 or 3 development), but that's the big one. That accounts for growth and margins.

the cost of equity took the average unlevered beta for the something chemicals industry (I forget the exact name) and levered it for their debt levels. That turend out to be pretty low so we bumped it up 15% on top of that.

I'll come back alter and write some more in depth explanations.

EDIT: As for some of the EBIT differences, my roommate worked on most of that part so I don't have any dfinite answers for you. I know that we adjusted their GAPP reported figures somewhat to account for what we felt was a more accurate forward-looking picture of the company. This is pretty common.

One more edit: I kind of brushed over that whole corn grwoing without water thing, but that is a BIG BIG BIG deal. The grwoth rate in 2010 of 30% seems high, but a more realistic number is probably 230%.

[Evan]

DesertCat,

Your example of an investment where all the cashflows come in one year is a very specific one and my first instinct, without working it out, is that it leads to a different conclusion than real life. If instead of all the cashflow coming in year 5, it instead came every year but lets say investors could only invest for 5 years at a time, then its worth the same at any point. Even if you extend the life of the business into perpetuity, if we're still assuming constant cash flows of 1 every year, it's worth the same whenever you buy it.

When you start adding growth and adjusting for real instead of nominal dollars you may be right, but I don't think your example shows it very clearly. I'll definitely think about it.

[edtost]

[ QUOTE ]
DesertCat,

Your example of an investment where all the cashflows come in one year is a very specific one and my first instinct, without working it out, is that it leads to a different conclusion than real life. If instead of all the cashflow coming in year 5, it instead came every year but lets say investors could only invest for 5 years at a time, then its worth the same at any point. Even if you extend the life of the business into perpetuity, if we're still assuming constant cash flows of 1 every year, it's worth the same whenever you buy it.

When you start adding growth and adjusting for real instead of nominal dollars you may be right, but I don't think your example shows it very clearly. I'll definitely think about it.

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his position holds whenever growth > r.

[Ray Zee]

when you invest in a company which may have very low values you can find down the road the profits end up in the managements pockets and not yours. or they get sued out of existence. like w,r, grace with their asbestos crap.
a good buy in a stock must include a company that sends its profits to its sharholders in some form.

[Evan]

[ QUOTE ]
when you invest in a company which may have very low values you can find down the road the profits end up in the managements pockets and not yours. or they get sued out of existence. like w,r, grace with their asbestos crap.
a good buy in a stock must include a company that sends its profits to its sharholders in some form.

[/ QUOTE ]
That Monsanto works in an indsutry that is subsidized by the federal government minimizes the legal risk in my opinion. As for shareholders not seeing the profits, that is a general concern with any firm I suppose. So there's not much I can say there.