Buy Archer-Daniels-Midland as a Goldilocks Stock at the Perfect Time

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Archer-Daniels-Midland (NYSE:ADM) reports earnings on April 26 before the market opens. Earnings reports are always important, but this week investors will be paying particular attention to anything that they can perceive as a green shoot. That’s why we believe you should take a close look at ADM stock. As a middleman in the supply chain, it will play a key role in mitigating the effects of inflation on food and fuel prices.  

Analysts project the company will report earnings of $1.41 per share. That would be 5% higher than the consensus price of $1.34 of the analysts tracked by MarketBeat. It’s also a smidge higher on a year-over-year basis. Estimated revenue of $20.80 billion would be about a 10% improvement over the same quarter in the prior year. 

Solid results, but not spectacular. However, that may be just the formula for beleaguered investors.  

A Crucial Link in the Supply Chain 

Just when investors thought that the world’s supply chain was beginning to untangle, geopolitical events are creating new kinks. The Russian war on Ukraine has raised the cost of commodities such as corn, wheat, and sunflowers. ADM does have some exposure in Ukraine, but it represents only a small fraction of the company’s business.  

And the Biden administration's decision to allow higher ethanol blends during the summer makes efficient delivery of ethanol critical to the success of the supply chain. However, even prior to that announcement, ADM executives were forecasting that ethanol demand would return to pre-pandemic levels in 2022.  

The company is also undertaking initiatives such as the $300 million expansion of its Decatur plant to meet the demand for alternative proteins. That project is expected to be complete early in 2025.  

A Good Time to be a Goldilocks Stock  

From April 21, 2017 to February 14, 2020, Archer-Daniels-Midland was about as “boring” as a stock can be. During that period, ADM stock was down just 2%. But as you look at the stock chart, it was the definition of a Goldilocks stock. It never got too hot, never got too cold. And it paid a consistent dividend. That made the stock a solid, but not spectacular choice for investors. 

However, the pandemic changed that narrative. And in the last two years, ADM stock has been behaving like a full-fledged growth stock. Since hitting a low of $30.61 at the onset of the pandemic, Arthur-Daniels-Midland stock is up 200%.  

A Time For Caution Makes ADM Stock a Buy 

You can find any number of reasons not to buy a stock right now. And the set-up for ADM stock is not perfect.  

• The P/E ratio of 18.99 is below the sector average, but it’s still a little higher than some investors would like.  
• Three analysts have increased their price target for the stock in the last month, but the consensus price target still suggests a 15% downside risk.  
• The stock is within approximately 10% of its 52-week high when the S&P 500 is trading at about the mid-point of that range.  

And even die-hard dividend investors may find ADM stock to be a little lacking. In January, the company made it 49 consecutive years of increasing its dividend. But with a dividend yield of 1.74% there are better options for the dividend side of your portfolio. 

Will this growth last? The outlook is that the company will beat revenue and earnings on a year-over-year basis in 2022. After that, things level out and may even decline a little bit. However, through 2026 both numbers are expected to remain above pre-pandemic levels. In fact, if a 2026 estimate of a $5.11 full-year EPS is accurate that would be 46% higher than in 2019. That suggests that ADM stock may be a play for the rest of 2022 and even longer if its price continues to fall.