MONSANTO CO. $112 (New York symbol MON, Aggressive Growth Portfolio; Manufacturing & Industry sector; Shares outstanding: 524.2 million; Market cap: $58.7 billion; Price-to-sales ratio: 3.9; Dividend yield: 1.5%; TSINetwork Rating: Above Average; www.monsanto.com) sells technology-based agricultural products, such as genetically modified seeds, to farmers, grain processors and food producers. The company’s seeds make crops more resistant to pests, diseases and bad weather.

Monsanto gets about 70% of its revenue from genetically modified seeds for corn, soybeans and other crops. The remaining 30% comes from selling herbicides, mainly under the Roundup brand.

New businesses cut risk

Monsanto’s revenue fell 10.4%, from $11.7 billion in 2009 to $10.5 billion in 2010 (fiscal years end August 31). Competition from generic herbicides hurt sales of the company’s Roundup products. However, revenue quickly recovered and rose to a record $14.9 billion in 2013.

The company laid off workers and closed plants in response to the sharp drop in Roundup sales. Costs related to these cuts lowered its earnings from $4.41 a share (or a total of $2.4 billion) in 2009 to $2.41 a share (or $1.3 billion) in 2010. However, savings from these moves boosted Monsanto’s earnings to $4.54 a share (or $2.45 billion) in 2013.

Genetically modified foods have been around for 30 years. Even so, Monsanto remains a major target for environmental and food safety activists.

To cut its reliance on genetically modified seeds and weed killers, the company is diversifying into other agricultural businesses. For example, it recently paid $917 million for Climate Corp., which makes weather forecasting software and climate models. These products help farmers decide when to plant their crops to maximize their harvests.

High research spending is a plus

The company also recently paid $300 million for 50% of a new venture with Denmark’s Novozymes. This business will commercialize Novozymes’ technology, which uses microscopic organisms to help plants grow and resist pests. Novozymes will develop these organisms, while Monsanto will test and market them.

Meanwhile, Monsanto continues to improve its own products. It spent $1.53 billion (or 10.3% of its revenue) on research in 2013. That’s up 1.1% from $1.52 billion (or 11.2% of revenue) in 2012.

The company can easily afford to keep increasing its research spending and making acquisitions: as of February 28, 2014, its long-term debt was $3.05 billion, or a low 5% of its market cap, and it held cash of $3.9 billion, or $7.34 a share.

Market dominance justifies high p/e

Monsanto is up 30.2% since we first recommended it at $86 in our November 2012 issue. It now trades at 21.5 times the $5.22 a share it will probably earn in fiscal 2014. That’s still a reasonable p/e ratio for a company that dominates this increasingly important niche market. Moreover, the growing worldwide need for more and better food will continue to spur the stock. The $1.72 dividend yields 1.5%.

Monsanto is a buy.