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Monsanto: A Food Stock with a Bad Aftertaste

For related articles and more information, please visit OCA's Genetic Engineering page, Millions Against Monsanto page and our Canada News page.

As a growth investor with a long-term focus on stocks, it's just as important to know what stocks to avoid as it is to know which ones to invest in. Most growth trends don't last forever and you don't want to be stuck holding the bag when growth disappears or reverses. And perhaps even better, if you're willing to short sell stocks that you believe are negatively exposed to an industry change, you can add a margin of safety to your portfolio in the short term while potentially improving your long term returns.

Normally I write about traditional technology stocks and trends, but you may not realize that what we feed ourselves and our families has a lot of biotechnology baked into it. I'm a firm believer that the generally poor quality of the food we eat, as a population, is the root cause of the vast majority of illness. The food industry, like any other, is about scale and efficiency. But when it comes to food, the techniques used to produce it in higher quantities and at lower cost have plenty of people scared about a tradeoff in quality.

One of the major technologies used to grow crops, for example, is the genetic engineering of seeds. Corn and soy are by far the dominant crops grown using this technology and they are staple ingredients for meat production. These plants are fed to cows, pigs and other animals that we regularly find in the butcher section of our grocery store. Cheap, genetically engineered corn and soy make for cheap meat.

In the U.S. and Canada, a huge amount of corn is also used to manufacture high-fructose corn syrup (HFCS), a cheap sweetener that has replaced ordinary sugar in almost every sweetened beverage on the market. In case you're reading ingredient labels, HFCS is referred to as "glucose-fructose" in Canada.

Monsanto Co. is the industry giant when it comes to creating, patenting and selling genetically modified (GM) seeds and associated chemicals such as the herbicide Roundup. Most of Monsanto's sales are in the U.S. market, where there is no legal obligation to label GM ingredients as such. And this has played to Monsanto's advantage. The company's stock has performed ridiculously well over the last decade. It's up about tenfold in 10 years. That's the kind of gain people don't complain about.

But there is a battle raging between consumers and Monsanto. I don't have enough space in this article to dive into the science, but suffice to say that many industry experts believe genetically modified crops negatively affect our health. This is leading to a big push for better labeling, so consumers know if they are buying genetically modified foods or not.

In many European countries, such labeling is already standard practice. This is almost certainly the reason Coca-Cola, Pepsi and other sweetened beverages are manufactured using regular sugar rather than high-fructose corn syrup. The soft drink companies would rather not have to label their product as genetically modified.    

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