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The Zacks Analyst Blog Highlights: Monsanto, E. I. du Pont de Nemours, Dow Chemical, Google and Fossil Group

Zacks Equity Research

For Immediate Release
Chicago, IL – March 20, 2014 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Monsanto Company (MON-Free Report), E. I. du Pont de Nemours and Company (DD-Free Report), Dow Chemical Company (DOW-Free Report), Google (GOOG-Free Report) and Fossil Group (FOSL-Free Report).
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Here are highlights from Wednesday’s Analyst Blog:

GMO Tide Rising: 3 Stocks to Benefit

According to recent data from the U.S. Census Bureau, the world's population has already crossed 7.1 billion and is likely to surpass the 10 billion mark by 2055. Concerns about the depletion of available natural resources have come to the forefront.

In order to address this issue, efforts are made to step-up global crop production by expanding cultivable land area, increasing the frequency of cropping and increasing yields. However, despite sincere execution, certain impediments have arisen.

This has brought Genetically Modified Organisms (GMOs) into play. GMOs are organisms whose genes have been altered using various methods. These are the primary source of genetically modified crops. However, over the years, the use of GMOs for the society’s well-being has been a hotly debated topic. While a group of scientists considers GMOs to be environmentally hazardous, others regard them as a necessity for increasing crop yield.

Before we suggest the stocks that are poised to benefit from the GMO backdrop, let us take a quick look at the advancement so far.     

GMOs: The Pros & Cons

Supporters of the environment-safety movement argue that GMOs might leak into the wild and altar ecosystems. However, it has been proved that none of the crops is enduring enough to disrupt the natural flora. Another concern revolves around the possibilities of unintended genetic changes in the crop. It has been argued that the process of gene insertion and tissue culture can result in unintended genetic changes.

The other school of science believes that the advantages from GMOs outpace the so-called negative effects. Not only are they safe, but are also economically viable. Moreover, GMOs reduce the use of synthetic chemical pesticides that are harmful to the environment.

For a large number of genetically modified crops, the modified genes never enter the food supply since they are removed during processing. It has been proved that genetically modified sugar beets are chemically equivalent to the non-modified ones, while oil extracted from soybean, cottonseed and corn are identical to oil from natural crops. 

Adoption So Far

Based on positive feedback and an incessant need to feed the growing population, some countries have accepted GMOs, although with certain conditions. As on 2012, 42 countries in the European Union (EU) along with other nations required the products containing genetically modified components to be labeled. Some EU countries including Switzerland, Austria and Hungary banned the usage, while others have been selective in their approval. However the biggest propagators, the U.S. and Canada, have accepted GMOs without any adjustments.

Commercial usage of genetically modified crops was first approved in 1996. Currently, the total plantation has increased to 167 million acres of land worldwide. The U.S. is by far the largest producer of these crops, accounting for two-thirds of the world's production. The National Center for Food and Agricultural Policy estimates that 85% of the U.S. corn is genetically modified. Other modified crops include cotton, soybeans, canola, squash and papaya.

Other regions that approve of the modified crops usage include Argentina (modified soybeans), Canada (modified canola), China and South Africa (modified cotton), and Brazil (modified soybeans). 

These crops are mostly needed when a natural calamity occurs and when farmers are unable to produce the required yield through the same resources. Proper usage of these crops lowers production costs, reduces pest problems, lowers use of pesticides and improves yield, per the National Research Council. Gauging from these factors, we believe the future of the genetically modified crops is bright.

3 Stocks to Benefit from the Wave

Of course, the direct beneficiaries would be the companies that are manufacturing genetically modified crops. Here are three such companies that we think would stand out:

Monsanto Company (MON-Free Report): Based in Missouri, this Zacks Rank #3 (Hold) stock is considered the biggest player in the modified foods industry. The company’s most accepted and widely used technology is the Roundup Ready system for soybeans, developed in 1974. Monsanto is trading at a forward P/E of 21.6x and has long-term expected earnings growth rate of 13.5%.

E. I. du Pont de Nemours and Company (DD-Free Report): Another major player in the genetically modified market is DuPont. This Zacks Rank #3 stock offers protection for crops like corn, cotton, potato, soybean, vegetable, rice, peanut and tobacco. It is trading at a forward P/E of 15.2x and has a long-term expected earnings growth rate of 8.5%.

The Dow Chemical Company (DOW-Free Report): This Zacks Rank #2 (Buy) stock deals with products like crop-enhancing traits, healthy oils, residential pest control, crop protection products, and vegetarian management solutions. The company has a forward P/E of 16.8x and a long-term expected earnings growth rate of 9.62%.

Fossil to Make Android Watches

Watches are going to get a whole lot more interesting this year, as Google (GOOG-Free Report) has released Android Wear, its wearables SDK for developers.

Google’s close partners LG and Motorola are likely to be the first ones with an Android watch going by their announcements yesterday. Motorola expects its Moto 360 to be available some time in the summer, while LG’s G Watch is expected in the second quarter. But they will soon be followed by watches from traditional partners Asus, HTC and Samsung, as well as fashion accessories maker Fossil Group (FOSL-Free Report).

Fossil shares jumped 4.6% following the announcement, as investors breathed a sigh of relief. Watches have not been a popular item of late, having gained the status of a discretionary item since phones started keeping time. The sheer variety has also made smart phones preferred gift items.

While Fossil’s watch sales improved somewhat immediately following the recession, they slumped again as pent-up demand wore off. The persistent weakness in demand led to increasing concerns for the future, so the collaboration with Google looks like a godsend.

Fossil is not new to the concept: the company did try making its own smart watch some time back. But the device was a flop and had to be scrapped. The Android OS and the advantages of using Google Now are likely to make the watches attractive. So the company may be able to leverage Android’s popularity to remain relevant in watches.

Fossil’s fashion customers are mostly women with an eye for fashion, so the “coolness” of the device will be an important factor. The company has also been expanding internationally, so Android-based value watches for emerging markets could also boost sales.   

For Google, the agreement holds promise because it automatically gets Android into a premium category.

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