We recently compiled a list of the Jim Cramer’s Latest Lightning Round: 10 Stocks to Watch. In this article, we are going to take a look at where Archer-Daniels-Midland Company (NYSE:ADM) stands against the other stocks to watch according to Jim Cramer.
The host of Mad Money, Jim Cramer, shared his insights on the persistent issue of inflation. He emphasized that companies need to lower their prices to entice consumers in today’s economic climate. Cramer pointed out the hesitation many companies exhibit in reducing prices.
Cramer said:
“Companies are so reluctant to take prices down because they don’t want to hurt their treasured gross margins but I think it may be time for a giant reset.”
While prices may have stabilized and no longer surged as they once did, Cramer warned that this does not imply they are decreasing. He believes many companies are failing to recognize the necessity for price rollbacks.
He gave a few examples from the liquor industry, where some producers have said that declining sales shifts are because of consumer preferences toward healthier lifestyles rather than acknowledging high prices.
Cramer went on to say:
“Funny enough, if you keep prices low, you can indeed make it up in volume because the consumer is a lot smarter than some of these companies are ever willing to admit.”
Cramer mentioned that both consumers and Wall Street are responding positively to companies that have opted for discounts or price reductions. He talked about the decision by McDonald’s to extend its $5 value meal, which has successfully attracted lower-income customers, and it led to an increase in its stock value.
Cramer mentioned that giants like Amazon, Costco, and Walmart have seen substantial stock gains this year. Cramer believes that businesses willing to reduce prices can compensate for their margins through increased sales volume.
Cramer speculated:
“I think we’ll look back on 2024 as the year when consumers took matters in their own hands and actually said no to inflated prices.”
He warned that companies that fail to adapt may face dire consequences, including leadership changes and plummeting stock prices. Talking about the consequences, he said:
“The result? Fired CEOs and crushed stock prices for all those who refused to heed the thunder, the thunder of those angry consumers who finally just said no to the scourge of inflation.”
Our Methodology
For this article, we compiled a list of 10 stocks that Jim Cramer talked about during the lightning rounds of his Mad Money episodes on October 1 and 2. We listed the stocks in ascending order of their hedge fund sentiment as of the second quarter, which was taken from Insider Monkey’s database of more than 900 hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A wheat field at sunset, showing the company’s commitment to agricultural commodities.
Archer-Daniels-Midland Company (NYSE:ADM)
Number of Hedge Fund Holders: 35
Archer-Daniels-Midland Company (NYSE:ADM) is involved in the procurement, processing, and marketing of agricultural commodities and ingredients, with operations spanning regions such as the United States, Europe, and Brazil.
The company runs through three segments, Ag Services and Oilseeds, Carbohydrate Solutions, and Nutrition. It manages a wide range of products, including soybean meal, vegetable oils, sweeteners, animal feed, and specialty food ingredients, along with offering commodity brokerage services that support its extensive role within the agricultural supply chain.
Mentioning Archer-Daniels-Midland (NYSE:ADM), Cramer said “I think it is a value trap”.
According to a consensus of 12 analysts, the EPS is expected to decrease by a little over 23% year-over-year in 2024. In 2025, the company’s EPS is expected to be 22.5% below 2023 levels.
Additionally, in the second quarter, the company faced significant challenges, resulting in a nearly 12% decline in revenue, totaling $22.25 billion.
The Ag Services and Oilseeds segment was particularly affected, experiencing a steep 56% drop in profits. The Nutrition segment also reported a decline, with profits decreasing by 36%.
The company attributed the struggles in Ag Services and Oilseeds to several factors, including reduced selling activity from farmers due to a smaller crop in Mato Grosso, rising logistics costs from take-or-pay contracts, increased supply from Brazil and Argentina, and narrowing soybean crush margins.
The economic pressures contributed to a decline in Archer-Daniels-Midland (NYSE:ADM) earnings, which fell to $1.03 per share compared to the previous year, primarily driven by lower crush and origination margins.
Earnings before taxes for the second quarter amounted to $596 million, a 47% decrease, which was linked to lower pricing, reduced execution margins, and increased unallocated corporate costs.
Diamond Hill Capital stated the following regarding Archer-Daniels-Midland Company (NYSE:ADM) in its Q2 2024 investor letter:
“We exited three positions in Q2, including Generac Holdings, NXP Semiconductors and Archer-Daniels-Midland Company (NYSE:ADM). Agricultural commodities and products company Archer-Daniels-Midland recently announced a nutrition-segment accounting issue — while it didn’t require a restatement of consolidated financials, we think it may be the proverbial canary in the coal mine. As we consequently lost our confidence in the management team, we exited our position.”
Overall ADM ranks 5th on our list of the stocks to watch according to Jim Cramer. While we acknowledge the potential of ADM as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ADM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
Read Next: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.
