The burden of a good reputation
Archer Daniels Midland Company (NYSE:ADM) has some good things going for it. As a diversified provider of agricultural services, such as trading, storage and transportation, Archer Daniels Midland Company (NYSE:ADM) has a strong level of vertical integration. Rated by Fortune as the most admired food production company from 2009 to 2011, the company also has a strong reputation. With a 2.1% dividend yield, Archer Daniels Midland Company (NYSE:ADM) also has a solid line on being an income investment.
Unfortunately, there are some problems here. For one, despite $91.3 billion in trailing annual sales, the company is only rocking a 1.4% profit margin. This could indicate that if a problem occurs, Archer Daniels Midland Company (NYSE:ADM) may have difficulty keeping its operation running smoothly. Also, trading around 19 times its earnings means that the company’s price is a bit steeper than much of the S&P 500 — not exactly a bargain. While you could find good value in Archer Daniels Midland Company (NYSE:ADM), I would recommend buying in on a dip or waiting until the next quarter to see if the profits pick up.
Skipping a step
Bunge Ltd (NYSE:BG) operates in 40 countries and does a lot of work in international soybean export and grain trading. The sheer volume of international exposure Bunge Ltd (NYSE:BG) carries gives it a great deal of currency resistance — using currencies from all over can help keep earnings stable. The company is also a decent income play, with a 1.6% dividend. It has also carried a clean environmental record since 2006, having mended its factories to bring them into compliance.
However, there are issues keeping Bunge Ltd (NYSE:BG) from being a great buy. For one thing, the company is barely earning a profit, holding only 0.2% profit margins. While Bunge Ltd (NYSE:BG) is trading almost exactly at its book value, it is also trading at around 96 times its earnings. This raises serious red flags about the company’s prospects of gaining value. For a company with a $10 billion market cap, this is a pricey situation.
Beyond this, there is a vital gap in the integration process that Bunge Ltd (NYSE:BG) is missing, and that’s the actual production of basic components. While the company works in transportation, fertilizer and processing, growth is the most important aspect of produce. This opens Bunge Ltd (NYSE:BG) up to a lot of volatility based on commodity prices, which can make the stock even riskier.
