by Financial Trader Research©

ADM Reaches Our Sale Price

We initiated coverage on ADM in our prior report, 1.23.2007, where we were less than encouraged by our Lupo-Kioutas© enterprise business model findings. 

We pointed to ADM's management statement following a prior earnings report which follows: "Our earnings, more than double those of a year ago, reflect strong momentum in our core businesses. However, we will continue to experience the challenges of dealing with volatile commodity prices.”

Our concern was the lack of conviction and transparency in leadership's communication, particularly since ADM's primary engine of growth is the commodities market.

Still, we found that ADM share prices were oversold on a weekly basis and due for a trading bounce.  In addition, the 14 bar stochastic on the weekly and daily charts (not shown) indicated that short term price appreciation was imminent.  

Recently, better than expected earnings were the catalyst behind ADM's price appreciation.  With the recent run up in prices, the oversold conditions are now relieved and ADM is positioned to resume its long term down trend. 

Given the fundamental background of equity valuations and management's waffling on success, we do not expect the share price increase to breach the stock supply layer, which currently hovers between 35.00 to 37.50. 

Conclusion:  ADM shares are richly valued and unlikely to appreciate further in an already overvalued market.  In addition, we believe that most of the good news for ADM is already priced in at current levels and that management will under-perform in a challenging commodity market, particularly the corn market, ADM's primary input commodity. 

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