Archer-Daniels-Midland: "Everybody Needs Food"

06/25/2020 5:00 am EST

Focus: CONSUMER

Gordon Pape

Editor and Publisher, The Income Investor and the Internet Wealth Builder

Everybody needs food. It doesn’t matter if it’s a pandemic, recession, or even war, we all need sustenance to survive, asserts Gordon Pape, editor of Internet Wealth Builder

So, it should come as no surprise that companies in the food industry are doing well during this time of COVID-19. While some (especially meat packers) have suffered temporary setbacks due to infestations of the coronavirus, those appear to have largely been overcome, at least for now. 

Chicago-based Archer-Daniels-Midland (ADM) is one of the largest food-processing companies in the world. I view it as good value in the current environment. 

ADM traces its history back to 1902. Over the years, strategic acquisitions have made ADM into an international giant with operations around the world. Revenue in fiscal 2019 was $65 billion. 

The variety of products ADM produces would take pages to list. They include flours and grains, beans and pulses, nuts, oils, proteins, starches, and sweetening solutions. The company is also a major player in animal nutrition, chemicals, packaging, personal care, and renewable plastics. 

First-quarter revenue was $14.8 billion, down from $15.3 billion in the same period of 2019. On the profit side, the results were much better. Net earnings attributable to shareholders were $391 million ($0.69 per share) compared with $233 million ($0.41 per share) in the same period of 2019. Adjusted earnings were $0.64 per share, up from $0.46 a year ago. 

The company has a strong balance sheet with cash and cash equivalents of $4.7 billion at the end of the first quarter. ADM increased its quarterly dividend by a penny at the start of the year, to $0.36 a share ($1.44 per year). The yield is 3.6%. 

This stock is unlikely to ever be a big winner. If anything, the company is too big and diversified. What you will see is a fairly consistent trading range, which is not a bad thing these days. 

This stock is not going to propel a portfolio to new heights or wreak havoc in a market crash. It’s a solid holding that offers a decent yield and appears undervalued at the current level with a p/e ratio of just 14.79. Buy. 

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