Syngenta: A Crop to Complete the Harvest

Agricultural biotechnology gives investors a unique blend of safety and growth potential, with high barriers to entry for competitors because of the long-term research required. Due to the need for scale, market share and significant capital, this subsector is dominated by two companies: Monsanto (MON - commentary - Cramer's Take) and Syngenta (SYT - commentary - Cramer's Take).

I recently wrote that it was a great time to take a position in Monsanto. However, investors who own Monsanto can capture the majority of the market share and technological developments in agricultural biotechnology by adding Syngenta to their portfolio.

Syngenta was formed in 2000 when Novartis spun off its crop protection and seed business and merged it with AstraZeneca's agrochemicals business. It has emerged as the number two player in genetically modified plants, products and hybrid seeds. In addition, Syngenta has recently unveiled its new sugar cane planting technology and announced key seed company acquisitions in emerging markets.

Like Monsanto, Syngenta has worldwide operations and a highly diversified portfolio of products. The crop protection division has products for herbicides, fungicides and insecticides. The seed division sells products for corn, soybeans, vegetables, flowers and other diverse crops.

Syngenta and Monsanto both compete with and complement each other. In some cases, they are direct competitors, with one or the other dominating the market for a particular product or specific region. In other cases, they are developing different genetic traits for various crops in the industry.

A quick look at the legal skirmishes between the two illustrates the level of dominance they these two companies have in their markets. However, for antitrust purposes, there are sometimes limits on how much Syngenta or Monsanto can dominate a particular market, in which instance they are both needed.

From 2003 to 2007, Syngenta's sales grew at over 9% while earnings grew about 47% on a compound growth basis. Third-quarter sales growth for 2008 was 28% and broadly based, with increases in most product lines and regions. The company currently has 2009 EPS estimates in the $3.77 range, and Sygenta recently reaffirmed its goals for earnings per share growth of more than 35 percent in 2008.

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At the time of publication, Gear had no positions in the companies mentioned.

Steve Gear was director of capital markets at Stockhouse.