What is it that makes equity investing such a powerful tool for increasing wealth? Edgar Lawrence Smith described the reason back in 1924 when he wrote a slim little book titled "Common Stock as Long Term Investments." Legendary economist John Maynard Keynes, in reviewing the book, was quick to delineate its most important point.

Keynes wrote: "Well-managed companies generally do not distribute to shareholders the whole of their earned profits. In good years, if not in all years, they retain a part of their profits and put them back in the business. Thus, there is an element of compound interest operating in favor of a sound industrial investment."

It is that simple. Stocks outperform other investments because businesses retain earnings, which they reinvest in the business to generate still more earnings, while often increasing dividends in the process. Driving it all is the basic theory of compounded return.

Now let me show you exactly how you can put the above words into practice using as an investment candidate a company ??? one that has never been discussed here before ??? that has completely reinvented itself over the past 10 years.

Monsanto (Ticker: MON) produces seeds for large-acre crops such as corn, cotton and oilseeds (soybeans and canola), as well as for small-acre vegetable crops. The company also offers some of the leading in-the-seed trait technologies aimed at protecting crop yields. The immensely popular herbicide Roundup is a Monsanto product.

However, the Monsanto of today is not the company that was originally founded in 1901. In April 2000 Monsanto and Pharmacia & Upjohn merged, thereby ending months of speculation that Monsanto, troubled by a depressed stock price and mounting opposition to its controversial genetically modified crops, would split off its agribusiness unit or be acquired by a larger company.

Yet, Pharmacia never had any interest in crops. It bought Monsanto largely for Monsanto's G.D. Searle drug division, whose products included Celebrex. Pharmacia itself was subsequently sold to Pfizer in 2003 for $60 billion. Meanwhile, in 2002, Pharmacia spun off its Monsanto division to current shareholders after taking 15 percent of the company public.

So how is Monsanto doing today? For its second quarter of fiscal year 2007 ended March 31, Monsanto reported record net sales of $2.6 billion, a number that was 19 percent higher than the same period a year ago. Net sales for the first half of the year were a record $4.2 billion, a number that was 15 percent higher than the same period a year ago.

Earnings for the second quarter were 23 percent higher at 98 cents per share, while for the first six months earnings were 27 percent higher at $1.14 per share, vs. the same period a year ago. Net cash provided by operating activities was $520 million in the past six months, vs. $331 million for the same period in 2006, while the free cash flow was $290 million vs. $135 million a year ago.

As a result, the company's earnings guidance for the year is now $1.60 to $1.65 per share. The company also expects that its free cash flow for fiscal year 2007 will be in the range of $875 million to $950 million. Finally, Wall Street appears to have begun to appreciate the company because its share price rose 34 percent in the past 12 months.

Looking at the company's intrinsic value using a discounted earnings approach, with a 19 percent earnings growth rate and an 11 percent discount rate, yields a share price of $65. A free cash flow to the firm approach has the share price at $61. The shares recently closed at $57.79.

My earnings estimate for the share for this fiscal year is $1.70, and $2.20, for 2008. Using the current multiple or P/E ratio of 44, my projected share price is $75 over the next 12 to 18 months. Now that is a seed worth planting.