One Up On Wall Street: How To Use What You Already Know To Make Money In

by Peter Lynch

There’s also hidden value in owning a drug that nobody else can make for seventeen years, and if the owner can improve the drug slightly, then he gets to keep the patent for another seventeen years. On the books, these wonderful drug patents may be worth zippo. When Monsanto bought Searle, it picked up NutraSweet. NutraSweet comes off patent in four years and will continue to be valuable even then, but Monsanto is writing the whole thing off against earnings. In four years NutraSweet will show up as a zero on Monsanto’s balance sheet. Just as in the case of Coca-Cola Enterprises, when Monsanto writes something off against earnings, the real earnings are understated. If the company actually makes $10 per share in profits, but has to devote $2 of that to “pay” to write things off such as NutraSweet, when it stops writing off NutraSweet the earnings will rise by $2 a share. In addition, Monsanto is expensing all its research and development in the same fashion, and someday when the expenses stop and the new products come onto the market, the earnings will explode. If you understand this, you have a big edge.