It goes without saying that you'd call this a selective market: select the wrong stock, and there's a 30-40% haircut up ahead; select the correct stock, and you're positioned for the recovery with modest downside exposure. And with the aforementioned in mind, Archer Daniels Midland Co. (NYSE: ADM) is worth a review.The global recession decreased demand for ADM's products, and the company is likely to face challenging conditions for at least the next two quarters.
That said, this is a get-ahead-of-the-pack play: ADM will benefit from population growth and advantageous positions in emerging markets, once global growth resumes. Oilseed performance will be the star performer, followed by agricultural services.
The company's ethanol business will likely be the laggard, with margins pressured. ADM's $500 million joint venture with Brazil's Grupo Caberra to produce ethanol from sugar cane represents a safety valve, in the event U.S. public policy sentiment turns away from ethanol-from-corn, which faces mounting environmental criticisms and questions.
Wall Street punished ADM's shares as it became more-clear the global economy had entered a recession, driving shares from $49 to below $15 in October 2008, and the company's risk/reward indicates now is the time to get aboard the train, lest it get too expensive in six months.
Stock Analysis: Archer Daniels Midland is a moderate-risk stock. Consider buying a 25% position in ADM now; then buy another 25% in three months, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your ADM position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $17.
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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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Reader Comments (Page 1 of 1)
3-26-2009 @ 8:35AM
Kent said...
I would say, Bunge Inc. is probably a better investment in terms of their share price and income growth over these last couple of years. ADM may have the name recognition, but Bunge does have a wider global presence to off-set the ups and downs of the U.S. market.