Agricultural Commodities Giant Profits From Supply Shortages, Inflation As It Enters Buy Zone

Agricultural commodities giant Archer-Daniels-Midland (ADM) leapt into the Big Cap 20 the past week. The stock entered its buy zone as it continues to gain strength after beating earnings expectations.

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ADM stock gapped above its 92.36 buy point after it formed a cup-with-handle base spanning from April to September, according to MarketSmith pattern recognition. Shares are in a buy zone that goes as high as 96.98.

The stock is above its 50-day moving average and its 200-day moving average. The relative strength line is also hitting new highs.

Agricultural stocks are gaining recently as food insecurity digs its heels into the U.S. economy.

As the Federal Reserve continues to raise rates to combat high inflation, it risks plunging the economy into recession. High inflation exacerbates food insecurity, which is caused by a combination of drought, labor shortages and other factors. As a whole, these factors make it harder for some households to afford food.

ADM Stock Profits From Food Inflation

Plus, as the conflict between Russia and Ukraine rages on, some agricultural commodities are facing supply shortages. As a leader in commodities, ADM is profiting while trying to fix the supply chain issue.

“What we can see here in a very uncertain world is we have good, very good momentum going into 2023,” said ADM Chief Executive Juan Luciano on a call with analysts in late October. “We anticipate ongoing resilient demand for our products.”

On Oct. 25, ADM reported earnings that soared 92% to $1.86 a share, easily beating analyst estimates. Analysts now see earnings of $1.61 in the fourth quarter on sales of $25 billion.

Archer-Daniels-Midland produces oilseeds, corn, wheat, cocoa, and other agricultural commodities.

This industry leader scores well in other areas, ranking first in its grain and related food group, according to IBD Stock Checkup. However, the group itself ranks a lowly 93 out of 197 industries. ADM stock also holds a stout 97 Composite Rating out of the highest-possible 99 and has a 98 Earnings Per Share Rating and “B” Sales, Margins and Return on Equity (or SMR) Rating.

Wednesday, ADM also declared a cash dividend of 40 cents per share on the company’s common stock, bringing its annual dividend yield to 1.66%. The dividend is payable Dec. 7 to shareholders of record on Nov. 16.

Follow Michael Molinski on Twitter @IMmolinski

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