FRANK JAMES
CHAIRMAN AND CHIEF INVESTMENT OFFICER
JAMES INVESTMENT RESEARCH, INC.

COMPANY: Archer Daniels Midland Co.
TICKER: ADM (NYSE)
PRICE: $41.06
52-WEEK RANGE: $19.75–$46.71
MARKET CAPITALIZATION: $26.8 billion

Frank James is the chairman and chief investment officer of James Investment Research, Inc. The company oversees the James Advantage Funds, whose Small Cap Fund and Golden Rainbow Fund earned five-star ratings from the leading research firm Morningstar. Mr. James, who predicts bearish trends for most of the year, spoke to Elisa Mala of The New York Sun about why his outlook for this agricultural company is a bit more positive.

What does the company do?

They are the biggest U.S. agricultural processing company.

Why do you recommend this stock?

Archer Daniels Midland has a lot of things going for it that will help it resist declines. It’s a large cap stock, and a large cap tends to hold up better in declines. I noticed that when I first started my business in 1972. Annual sales are about $36 billion; it’s got 25,000 employees and 250 plants, so it’s anything but small.

That’s one thing. The other thing is that the fundamentals are still very good. It is cheap by most measures, such as price-book ratio, price-cash ratio, and the like. Only the PE (priceearnings ratio) is a bit high. The earnings are growing at a 46% faster rate than they were a year earlier. It does pay a dividend.The beta is .88, so that’s favorable. Its return on equity is about 12%. Even if you were not forecasting a decline, you would still be attracted to it.

It is an energy play, as the biggest producer of ethanol and the large and growing bio-diesel production facilities in Germany.

With the health food emphasis in America and Europe, it is positioning itself to be a major player in supplying healthy foods and supplements.

What drives growth forward for this company?

It’s the biggest U.S. producer of ethanol today. It has very large plants of bio-diesel fuel that it produces in Germany that are used throughout Europe. As a replacement for petroleum, it drives production and makes investors happy.

And the other part, of course, is the healthy food aspect. In June, Eugene Science began to ship plant sterols to Archer Daniels to use in foods that Americans eat.That’s going to be a major profit center. (As defined by the International Food Information Council, sterols occur naturally in plant and animal sources. Increasing the consumption of plant-based sterols can lower cholesterol.)

What are the risks?

The hazard in buying the stock is that the overall market is headed lower, we believe. Archer Daniels Midland has moved up rapidly over the past year, and a corrective pullback may be in order. As mentioned, the PE is a bit high right now. However, earnings are growing rapidly.

It also produces fuel that is used in automobiles and other places. If the price of oil went substantially lower, there would be people who wouldn’t like the stock so well.

The healthy food portion of its business is very fast-growing, and I think it’s going to be a big money winner in the future, so if people ever became disenchanted with trying to be very healthy, that would be a risk.

Which type of investor is this stock best suited for?

It’s had an increase in price this year from around $25 to about $41 today, so if you’re looking for a short-term gain, it’s probably already had a short-term gain. That would not be good for a short-term investor.

We generally are long-term investors and hold our stocks for quite a long time. This is one that we would buy and hope to look at again, and see it substantially higher over the longterm.