This article was written exclusively for Investing.com
- ADM probes above $70 per share
- Impressive earnings and an attractive dividend
- Feeding the world in an inflationary environment
- Biofuels add another dimension to ADM
- This multinational is a basic holding
Agricultural raw materials feed more than 7.872 billion people in the world. As countries grapple with climate change, agricultural products increasingly provide an alternative and renewable source of energy.
While farmers around the world crop every year to meet our planet’s ever-increasing demand for food and energy, four companies dominate crop processing, maintenance, and many agricultural sectors. These companies, known as ABCD companies, include:
- Archer Daniels Midland
- Bunge Limited
- Cargill (private company)
- Louis Dreyfus (private company)
In 2020 and 2021, all three major grain and oilseed markets saw impressive gains. rose 39.48% in 2020 and added another 1.03% in 2021. rose 24.82% in 2020 and 22.57% in 2021. Soft Red Winter Wheat Futures increased by 10.81% in 2020 and 20.34% in 2021. Inflationary pressures have pushed up input prices, with the increase in the value of fertilizers, energy, labour, transport and land. The prices of agricultural products have increased due to rising production costs and inflation.
Meanwhile, major processors of agricultural commodities have seen their profits soar. Archer Daniels Midland (NYSE:) shares traded at a new high of over $70 in early 2022, and the trend remains up.
ADM probes above $70 per share
Prior to the start of 2021, the all-time high for ADM shares was $53.91, the high of December 2014. In March 2020, as the pandemic gripped markets across all asset classes, ADM fell to $28.92 per share. Since then, ADM has reached a new all-time high and has continued to grow. The price has more than doubled since the March 2020 low.
Source: bar chart
As the chart shows, ADM hit its most recent high at $71.55 on January 14. ADM has done little more than make lows and highs since the March 2020 low.
Impressive earnings and an attractive dividend
At $71.55 per share, ADM’s market capitalization was just over $40 billion. The company pays shareholders a dividend of $1.48 per year, which translates to a yield of 2.22%. ADMs have consistently beaten analysts’ forecasts.
Source: Yahoo Finance
The chart shows that ADM has posted earnings above consensus forecasts for the past four consecutive quarters. Analysts expect the company to report $1.32 per share for the fourth quarter of 2021 next week when it reports earnings on Tuesday, Jan. 25 before the open.
A survey of 15 analysts on Investing.com has an average price target of $70.64, with targets ranging from $63 to $80 per share.
The consensus call on the stock by the majority of analysts polled was “outperform.”
Feeding the world in an inflationary environment
Last week, the US Bureau of Labor Statistics announced a 7% increase in 2021, the highest level in four decades. , excluding food and energy, rose 5.5%, well above the Federal Reserve’s average target rate of 2%. The most recent data that measures the wholesale prices of goods and services increased by almost 10% in 2021.
The Fed took steps to address rising inflationary pressures by accelerating the reduction in QE, setting the stage for a takeoff from a 0% federal funds rate at the March FOMC meeting. The central bank will likely shift from quantitative easing to tightening as it strives to reduce its bloated balance sheet by allowing debt securities to retire and not replace them at maturity.
Food prices rose in 2020 and became even more expensive in 2021. Prices for soybeans, corn and wheat hit multi-year highs last year. Over the past two years, oilseed and grain futures have posted double-digit percentage gains, with CBOT soybean, corn and soft red winter wheat futures hitting prices the highest since 2012 in 2021.
Over the period, most other grain prices posted double-digit percentage gains. Rising agricultural prices are bullish for ADM, a company that is a supermarket to the world, serving the nutritional needs of an addressable market that is constantly growing due to population growth.
Biofuels add another dimension to ADM
ADM has been in business since 1902, with its headquarters in Chicago, the hub of agricultural markets.
Addressing climate change through alternative and renewable energy sources increases ADM’s business landscape. Of the society website States:
“Today, biofuels such as ethanol and biodiesel are the primary alternative transportation fuels available to consumers, and ADM is a major producer of both..”
The bull market in agricultural commodities, rising inflation and the fight against climate change are creating a near-perfect bullish storm for Archer Daniels Midland, and its earnings should continue to soar.
This multinational is a basic holding
ADM is an American company, but its tentacles making it a global agribusiness leader alongside Bunge Limited (NYSE:) and private companies Cargill and Louis Dreyfus. The four companies dominate the agricultural sector.
ADM’s market capitalization at $40 billion as of January 18 was almost triple that of BG. At the $98.71 per share level, BG’s market capitalization stood at $13.87 billion.
Rising inflationary pressures should continue to support ADM’s earnings over the next year and likely drive the stock price higher. ADM is a core holding for portfolios looking for companies that will outperform the broader stock market in an inflationary environment.