Company Overview

Archer Daniels Midland (ADM) is a global food processing and commodities trading company that operates in various segments such as agriculture, nutrition, and transportation. The company is involved in sourcing, processing, and distributing agricultural products, including grains, oilseeds, and other raw materials. ADM’s diverse business encompasses food ingredients, animal feeds, biofuels, and industrial products.

Accounting Investigation is a Potential Red Flag

On January 22^nd, shares of Archer Daniels Midland cratered nearly 25% after news broke that the US Attorney’s Office in Manhattan had launched an investigation into the accounting practices at ADM’s nutrition segment.

Image Source: TradingView

The CFO of the company has already been placed on leave and has preemptively lowered earnings guidance. Though the investigation is ongoing, the CFO leave news doesn’t pass the smell test. Furthermore, investors must ask themselves, “With thousands of stocks to invest in, why should I invest in a company under investigation for its accounting practices?”

Are Americans Waking up to the Dangers of Seed Oils?

Seed oils, such as soybean oil, corn oil, and sunflower oil, have been criticized for several reasons regarding their adverse impact on health. These seed oils have an imbalance between omega-6 and omega-3 fatty acids that can contribute to inflammation. Inflammation is linked to various chronic diseases, including heart disease, diabetes, and certain inflammatory conditions. Furthermore, the plant-based protein (or meat alternative) craze appears to be nearing its end. ADM has seen persistently lower demand for its plant-based products. Beyond Meat (BYND), a pure play on the plant-based industry, is down by more than 64%, proving that this macro industry downtrend may have legs and may never recover.

Sales and EPS Growth Rates are Expected to Slow

Competition is heating up in several of ADM’s main segments from companies like Swiss-based Bunge Global (BG) and Cargill. As a result, Zacks Consensus Estimates suggest that ADM will suffer negative earnings and sales growth in 2024.

Image Source: Zacks Investment Research

Chronic Relative Underperformance

On Wall Street, the only scoreboard that counts is price performance. Beyond ADM’s many fundamental issues, the company does not perform much better from this perspective. Over the past year, shares have lagged the S&P 500 Index’s 20.8% gain and lost 34.6%.

Image Source: Zacks Investment Research

For investors, few feelings are worse than investing in a chronically underperforming stock. Until ADM exhibits some semblance of a trend reversal, investors should avoid shares. 

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