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Adm Isn't Staying Down On The Farm

Inside Wall Street


As a die-hard value player, invest-ment manager Wayne Nordberg is always on the lookout for big names that have fallen hard--and are bereft of friends. "Often, real value is overlooked in stocks where expectations are low," says Nordberg, head of equity investing at Lord Abbett, which manages $25 billion. One stock he's high on: scandal-ridden Archer Daniels Midland (ADM), a processor of commodities such as corn, wheat, and oilseeds.

Archer Daniels has "missed the entire bull market," says Nordberg. Hovering between 15 and 22 since 1995, the stock is now at 20.

But three factors, argues Nordberg, favor buying ADM: The company has settled the most potentially damaging lawsuits brought by the Justice Dept. and others for price-fixing and for illegal payments to executives; a turnaround in earnings, figures Nordberg, is just six months away, helped by projected returns from investments in Europe and in bio-products; and a joint venture is rumored to be in the works between ADM and Monsanto.

There is talk that Monsanto, a giant in chemicals and farm products, could buy a stake in ADM. Monsanto, with sales of $9.2 billion last year, has a market capitalization of $26.7 billion. ADM, with sales of $13.3 billion, has a market cap of $11.6 billion.

Nordberg says that ADM's entry into lucrative bio-products fueled those whispers and that Monsanto might go after the whole company. But he thinks a joint venture is more likely. Making ADM amenable to such a venture is a more independent board and a new CEO, Alan Andreas, nephew of founder Dwayne Andreas, 79. ADM and Monsanto declined comment.

Bio-products is a new field for ADM, but it has invested $1.5 billion. Margins on products such as vitamin E, beta-carotene, and lysine are high, and return on assets could reach 20%, says Nordberg. He notes ADM has 60% of the $600 million lysine market.

With ADM's "clean balance sheet and cash on hand of about $2 billion," Nordberg says the company has an opportunity to invest more in its own businesses and bring earnings back on track. He believes it will earn $1.35 a share in the year ending June 30, 1998, and $2 in 1999. He figures the stock will be worth 40 in 12 to 18 months.

Lord Abbett analyst Richard Larsen says the market for processed farm products "is booming," led by Chinese demand. The tight corn supply in 1995 and 1996 hurt results, but now "the outlook is substantially better," he says.BY GENE G. MARCIAL

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