Thursday, September 17, 2015

Recent Buy: ADM



On September 17, 2015, I bought 25 shares of ADM at $44.49/share + fees for a total of $1119.25.

Nothing changed since my last buy. This is a good low PE company with a long history of dividend increase/stock buy back and steady eps. 

Instead of repeating fundamentals, payout ratio, etc. Let's talk about why I am heavy on ADM over K, GIS, KHC, or any other food company.

1) let's talk about food trends. 

From the Nielsen's 2015 Global Health & Wellness survey:  

  •  88% polled are willing to pay more for healthier food
  • All demographics are willing to pay more for healthier food including GMO-free, no artificial coloring/flavor, and "natural."
  • Consumers want "functional food"
    • 36% want more fiber 
    • 32% want more protein 
    • 30% want whole grains 
    • 30% wants fortified calcium 
    • 30% wants vitamins 
    • 29% wants minerals 



2) Let's talk about food companies.

GIS is rolling out gluten free, fortified vitamin and mineral cereals. 
K is doing the same.
KHC is going the "natural" route. 
UL has gone and is continuing to go the "natural" route.
KO and PEP are both going the natural sugar route.

All are looking for ways to beat their competitors in flavor and secondary benefits. Who will win and who will burn? I don't know. I want to get involved in this food trend but I don't know who to choose. I will eventually own all of these companies but paying for these P/Es is a big risk. So I chose a company that all will need. I basically bet on all the horses.


3) ADM products 



Wild Flavors was bought by ADM in 2014 for $3 billion dollars. According to its website, Wild Flavor is known for 


  • Resolver Technology - A natural functional flavor based on a mix of natural flavors and flavor extracts. It neutralises undesirable off-notes of certain functional ingredients including a bitter, soapy, metallic or burning aftertaste.
  • SaltTrim - Allows food and beverage manufacturers to halve the amount of salt used in their products, making them healthier without impairing the taste.
  • Colors From Nature - A line of natural colors and plant extracts which allow for a wide variety of applications. The products use the authenticity and high quality provided by plant extracts along with the understanding that plant extracts contain original valuable components.

ADM other products 


4) ADM future potential 
  • Mass land grab. ADM main risk is farming. It's their money maker but their bane of existence. Some years yields are great (currently the Midwest and eastern US). Some years yields are bad (currently the western US).
    • to even the yield ADM is investing heavier in South America, Eastern Europe, parts of Africa, large plot lands in asia, some in Australia, and a little bit in New Zealand. 

  • Mass buying. ADM bought Wild Flavors in 2014. ADM just bought AOR NV in Europe for an undisclosed amount. ADM is now in the higher end/margin oil business in Europe; specifically Belgium, Luxembourg, and the Netherlands. 


5) But ADM is not risk free. Risk includes 
  • Forex: A large part of ADM revenue is coming from overseas.

  • Global warming: Let's just assume global warming is real. ADM crop yield will be significantly lower due to global drought.

  • Corruption. So...ADM has a history of corruption (but to be honest who hasn't)...but some of the executives during the corruption scandal are still with the company. The corruption involves bribing foreign officials for land use (Ukraine).

My forward 12 months dividend currently stands at $1,950.50 +FCISX distribution. I'm getting closer to $2000. Portfolio updated. 

*The comments on this blog are my opinion. I am not a financial advisor or anybody you should trust to buy or sell stocks.

2 comments:

  1. Nice buy. I added to my ADM not long ago and like it long term for all the reasons you state above. It's a great long term dividend payer and has recently come down quite a bit form its recent highs. Thank you for sharing. Happy to be a fellow shareholder.

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