During the past two years, only one non-financial services stock has lost more than $50 billion in value. This one-time highflyer made mistake after mistake, and has seen market capitalization drop in value from $77 billion to $27 billion.

I’m talking about Monsanto (NYSE: MON), and I’m talking about it now because the shares are showing fresh signs of life in recent sessions. When a stock can hold its own in this market, investors often see solid gains once the broader market stabilizes.

Thanks to massive spending on Research & Development (R&D), Monsanto was able to become the leading player in the nexus of biotechnology and agriculture. Its patent-protected seeds helped farmers boost yields — and carried great profit margins. Its Round-Up herbicide also proved to be a cost-effective way to keep weeds in check, saving farmers money while sharply boosting cash flow — a win-win for everyone.

Then the wheels fell off. First, Chinese chemical companies started to steal major market share from Round-Up through a low-priced generic version called glyphosate. Then rivals, such as DuPont’s (NYSE: DD) Pioneer Hi-Bred division started to close the technology gap on those yield-boosting seeds. As a final straw, farmers began complaining that Monsanto was unfairly restricting their ability to use other cheaper seeds in tandem with its proprietary seeds.

As a result, management has been in damage control mode since last fall. It loosened the company’s seed policy, sharply cut prices for Round-Up, and most important, changed the profit dynamic between itself and customers. In the past, Monsanto priced its seeds to be sure that the profits farmers made by using the seeds were roughly equivalent to what Monsanto was making on its sales. Now, in a bid to burnish its reputation, prices have been re-set to give farmers two-thirds of the profits.

Management believes that diminished profit margins will more than be offset by higher demand. That’s because the company expects to take back market share from rivals Pioneer Hi-Bred and Syngenta (NYSE: SYT), whose seeds don’t offer the same degree of insect and weed resistance, but carried lower prices.

Life Left for Roundup

Monsanto’s recent decision to slash guidance was also largely a function of sharp price reductions for Roundup. You can bet management hated doing so. The company generated nearly $2 billion in profits from Roundup in fiscal 2008 by pricing it at $20 a gallon. But in recent quarters, Chinese rivals sold the generic version for half that price. Monsanto recently announced that Roundup will be sold for just $8 a gallon and will only make about $1 in profit on each gallon sold, or about $250 million annually.

Strangely, Monsanto is the industry’s lowest-cost producer thanks to its backward integration into phosphorous production, so such thin margins on the lower price have led many to suspect that Chinese rivals have been selling the generic version at a loss. Indeed, 50 of the 65 Chinese producers have already exited the market, and a further shakeout is expected. Reduced competition could enable Monsanto to push Roundup prices up $1 or $2 later this year. Each $1 swing in the price equates to $250 million in cash flow.

GM — Round Two

Monsanto virtually invented the GM (genetically modified) seed market, but as noted, has recently seen its rivals play catch up. But it’s important to note that the company’s seeds remain superior by a variety of measures. Monsanto only lost market share from overly-aggressive pricing strategies. The recent price cuts to rebuild market share are another factor behind recently lowered guidance. Yet management also notes that the technology roadmap during the next few years remains quite robust. That’s what $1 billion in annual R&D spending can do. Starting with an analyst meeting slated for mid-August, Monsanto is expected to begin discussing new product rollouts. Right now, analysts have little information with which to formulate future growth projections.

Action to Take –> Monsanto sought to lower the bar so sharply in May that the next time the company had to change guidance, it would be up rather than down. Indeed the cycle of downward earnings revisions appear over. Up until 18 months ago, management consistently sought to keep expectations low and then shoot past forecasts when results actually came out.

A combination of tremendous intellectual property, a still-robust global agricultural picture, and a more farmer-friendly attitude should push this company back on the growth path. Shares traded at more than 40 times projected profits a few years ago, but now trade for about 16 times projected fiscal 2011 profits. This stock will never again garner such a rich multiple, but there’s no reason it can’t support a P/E ratio in the low to mid 20s. That would translate into about +50% upside back to around $75. That’s a far cry from the $150 levels seen back in 2008, but new investors in the stock won’t complain about such a gain.