Archer Daniels Midland is boring and cheap

Sometimes, that is exactly what investors need.

By MSN Money Partner Nov 1, 2012 9:46AM

Bob Rashid Brand X CorbisBy Sheldon Liber


Where can you buy large quantities of food at wholesale cost? It would appear you can on the floor of the New York Stock Exchange. That is because Archer Daniels Midland (ADM) is selling for less than book value.


It's hard to believe that would be the case in a world with food shortages, inadequate distribution, insufficient arid land, high demand for potable water and seasonal weather patterns wreaking havoc on farmland in the United States, Russia and Africa. But it is.

On Wednesday, ADM closed down for the day, dropping below $27 to finish at $26.84 with a price-to-book of 0.98. Obviously, this is one boring stock. So much so that there has been speculation that cheap and boring might make it a target of the king of boring, Warren Buffett.


Berkshire Hathaway (BRK.A) has the cash and is on the prowl. Having a market cap of just under $18 billion makes ADM just about the perfect size target. Its largest rival, Cargill, is privately held.

It is speculation whether ADM might be an acquisition target. Nevertheless, this might be a good time for the average investor, if there is such a thing, to take a look. If you are interested in a large cap stock paying a dividend yield of 2.6% with a very manageable payout ratio of 37%, sporting a puny price-to-sales of 0.20 then this stock is for you. When the market is nearing new highs and the global economy is in tatters it also makes sense to consider rotating out of more volatile stocks into an old dependable.

There are piles of cash that small investors have pulled from the market still sitting on the sidelines. Archer Daniels Midland offers a relatively safe way to re-enter the market. The dividend also makes it a good long-term alternative to bonds, which at current interest rate levels are not a safe place and will not hold their value.

So, what is not to like? For one thing, ADM's net profit margin of 1.06% is teetering on non-existent. The return-on-equity of 5.24% is less than desirable and less than I would normally accept. However, sometimes safety is warranted over the flash of an Apple (AAPL), Google (GOOG) or Facebook (FB), which may indeed underperform the market in the coming year just as ADM is turning around.


For small investors, yield seekers and market bears, boring may be exactly what is needed. In the storm ravaged northeastern U.S. I am sure boring is exactly what they need right now.

Sheldon D. Liber is the CEO/CIO of Chasing Value Asset Management, Inc., and General Partner of the Chasing Value Fund. You can follow him on Twitter @chasingvalue

Tags: ADMBRK.A
2Comments
Nov 1, 2012 10:35AM
avatar
perfect! I have been in and out of ADM a couple of times in the last twenty years. Out recently in the 30's. Yesterday I decided that its valuation was so compelling long-term that I added Archer to my long-term personal holding. I for one hope that Warren Buffett keeps his BRK mitts off my Archer!
Nov 1, 2012 11:15AM
avatar
Warren, might give it a short term increase; That would be good,Right?
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

120
120 rated 1
265
265 rated 2
460
460 rated 3
719
719 rated 4
629
629 rated 5
629
629 rated 6
622
622 rated 7
437
437 rated 8
319
319 rated 9
116
116 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
BBBYBED BATH & BEYOND INC10
FOXATWENTY-FIRST CENTURY FOX Inc CLASS A10
TWXTIME WARNER Inc10
COPCONOCOPHILLIPS9
HDHOME DEPOT Inc9
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.