Dividend Inc

Archer Daniels-Midland: Why I'm Ready to Buy

Ahh...the passage of time has really told the story on this stock.

Since writing this article, the stock has fallen as low as $13.53 and has gone as high as $32. And while the stock hasn't retraced the highs as Andyn has said, the gains made in this stock have been exceptional.

If the stock had been bought at the time I made the research recommendation and sold at or near the high the gain would have been a compounded annual rate of 28%. While that might not seem like much it is far better than losing money.

When Timing Meets Opportunity: Which Dividend Achievers Are at a 52-Week Low?

Greetings BlueOkie,

I have backtested this approach since 1994 and actually used this method since 2004. Essentially, I took 10 years of testing and countless number of timesbacktesting this approach. My method obviously isn't the answer however it has returned double digit positive gains since 2004.

Greetings Larrysyr,

I totally agree with you about the viability of this method for the long term. However, when you visit my blog you'll see clear indications of when I issue a sellrecommendation. Additionally, I attempt to " seek fair profits" by holding only as long as it takes to beat "guaranteed" sources of income like treasuries or CDs. My "About This Site" section is much more clear on this concept.

Another matter to consider, if the return from the stock exceeds the dividend that could have been received within a year then the investor should seek betteralternatives. As as example, if a stock yields 5% but the price increases 10% in 6 months then the justification for holding the stock any longer has dissipated. I wouldn't sell the stock but I would definitely research any stocks that are within 10% of the 52-week low seeking to switch from one to another.

Another matter that is critical to my approach as listed on the blog is that I don't follow traditional diversification orthodoxy. I only hold 2 to 5 stocks at a time. This mean that 20% to 50% of investable funds will go into one stock. My attempt at explaining this concept can be found in the article titled "Diversification Doesn't Matter."

Elliot_Mllr,

Personally, I de-emphasis the matter of dividend yield. Dividend yield is the red herring in investment decision making among Dividend Achievers. Almost any company can pay out anoutsized dividend long enough to draw in new investors. More important to me is the earnings power and quality management behind the dividend yield. As far as I'm concerned the consistency of dividend increase is proof of both. As an example, when I issued my research recommendation of Helmerich & Payne in 2006 the dividend yield was less than 1%. However, if the stock was bought at or near the date of the recommendation the short and long term gains that followed were beyond what could have been received through any high dividend yield.

Archer Daniels-Midland: Why I'm Ready to Buy

Thanks for your comments Andyn.

This stock’s movement could be related to the ethanol subsidies offered by the U.S. government. However, the decline in ADM is not unique. Look at the majority of the stocks in the commodity sector and you’ll see that they have all declined precipitously relative to other industry groups outside of banking and insurance.

Regarding your thought that the price wouldn’t retrace the highs any time soon is obviously a challenging one to answer. If you ask anyone at the peak of a stock price they’ll often tell you that it can’t possibly go down and vis versa. However, I will respond by pointing out that it took the years from 2000 to 2005 for the stock to retrace the peak of 1997. In that regard, you’re right, five years seems a bit long.

However, the purpose of Dow’s Theory is to determine a point that you can expect to buy the stock. For this reason, if the stock fell to the $7.80 or 2/3 level and you bought it in September 2000 you would have likely sold the stock at $14.33 in February 2001. A gain of 83.7% in 5 months. If you were confident of Dow’s Theory then you would have kept the stock at least until the $25 dollar level in January 2005 or possibly the $46 high in May of 2006 a gain of 220% and 489% respectively.

Only time and the nerve to buy will tell the story on this stock. I will be tracking this stock on the blog for the benefit of those who wish to see which story will prevail. Thanks again and visit Dividend Inc. when the stock is at the $22-$20 level.