Is Archer Daniels Midland a Buy Now?

With shares of Archer Daniels Midland (NYSE:ADM) trading around $40, is ADM an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Archer Daniels Midland manufactures and sells protein meal, vegetable oil, corn sweeteners, flour, biodiesel, ethanol, and other value-added food and feed ingredients; and processes oilseeds, corn, wheat, cocoa, and other agricultural commodities. The companys Oilseeds Processing segment originates, merchandises, crushes, and processes oilseeds, such as soybeans and soft seeds into vegetable oils and protein meals.Its Corn Processing segment converts corn into sweeteners, starches, and bio products.  The companys Agricultural Services segment engages in buying, storing, cleaning, and transporting agricultural commodities, such as oilseeds, corn, wheat, milo, oats, rice, and barley; and reselling those commodities primarily as food and feed ingredients.

Archer Daniels Midland will likely have its bid for the Australian company GrainCorp (GRCLF.PK) blocked by Australian Prime Minister Tony Abbott. The West Australian reports that the bid is Abbott’s first big test as to whether Australia is really “open for business,” like he has claimed. Archer has made a $3.4 billion bid for GrainCorp but many are saying that Abbott will reject Archer’s bid or impose conditions that will make the deal unviable. Australia’s treasurer, Joe Hockey, has said that the rumors are incorrect, as he alone will be making a decision on the acquisition.

T = Technicals on the Stock Chart Are Strong

Archer Daniels Midland stock has been surging higher in the past couple of quarters. The stock is currently trading near highs for the year and looks set to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Archer Daniels Midland is trading above its rising key averages, which signal neutral to bullish price action in the near-term.

ADM

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Archer Daniels Midland options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Archer Daniels Midland Options

26.46%

0%

0%

What does this mean? This means that investors or traders are buying a minimal amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

December Options

Flat

Average

January Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Decreasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Archer Daniels Midland’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Archer Daniels Midland look like and more importantly, how did the markets like these numbers?

2013 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

157.17%

-20.99%

-31.67%

-58.82%

Revenue Growth (Y-O-Y)

-1.93%

-0.62%

2.69%

-0.43%

Earnings Reaction

2.23%

0.07%

0.05%

3.30%

Archer Daniels Midland has seen decreasing earnings and revenue figures over the last four quarters. From these numbers, the markets have had conflicting feelings about Archer Daniels Midland’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Archer Daniels Midland stock done relative to its peers, MGP Ingredients (NASDAQ:MGPI), Bunge (NYSE:BG), Ingredion (NYSE:INGR), and sector?

Archer Daniels Midland

MGP Ingredients

Bunge

Ingredion

Sector

Year-to-Date Return

48.12%

40.94%

12.71%

7.45%

28.30%

Archer Daniels Midland has been a relative performance leader, year-to-date.

Conclusion

Archer Daniels Midland  manufactures and sells agricultural commodities. The company will likely have its bid for the Australian company GrainCorp blocked by Australian Prime Minister Tony Abbott. The stock has been surging higher in the last couple of quarters and is currently trading near yearly highs. Over the last four quarters, earnings and revenue have been decreasing, which has produced conflicting feelings among investors. Relative to its peers and sector, Archer Daniels Midland has been a relative performance leader year-to-date. Look for Archer Daniels Midland to OUTPERFORM.

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