A corn-fed stock to dig into

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One of the hottest sectors in the market is agriculture. In this bizarre market environment, the formerly boring food space usually reserved for defensive plays is a rocket-ship growth sector.

Or is it?

Concern about using food crops for ethanol has captured the attention of this country and its politicians. The backlash has put stocks like Archer-Daniels-Midland (ADM, news, msgs) on pause. Since setting a new all-time high last month near $49, the food giant's stock has fallen below $44.

I think that creates an opportunity for investors who missed the run in agriculture. Food demand is still on the rise, and farmers are fighting the perception that ethanol is a negative instead of a positive for the environment and the economy.

While all this plays out, Archer-Daniels-Midland hums along making huge profits and generating large cash flow. So I asked our Strategy Lab Open players and bloggers a simple question: Is this stock a buy, sell or hold?

The political picture

Tom Heyseck says the answer is entirely political. "Outlook for ADM, you ask? That's a layup. ADM's valuation in the stock market is a function of who's in the White House."

In Heyseck's view, if Republicans win the White House, ADM is a buy. His logic is based on the fact that agriculture and ethanol are big and highly subsidized businesses. If a Democrat is elected, those subsidies may be at risk.

Of course, you can view that the other way quite easily. I always thought agriculture subsidies were a pet child of the Democrats -- the help-the-small-farmer thing.

At a minimum, the subsidies are valuable to both Democrats and Republicans given the explosion in the number of corporate farms. The one candidate that may change the dynamic is Barack Obama, who seems willing to take on the institutionally engrained polices of Washington.

But does any of this make ADM a buy, hold or sell?

Getting technical

Blogger "Ahknaten" is definitely on the sell side. He sees a nice price-to-earnings ratio and price-to-book value number, but a high stock price when compared with cash flow. "My conservative valuation gives me a price target of $33. Short."

The risk, of course, is that Archer-Daniels' new supergrowth status won't last. If earnings falter or the growth story changes, it's vulnerable.

Again, in a normal world, Archer-Daniels is a conservative, dividend-paying stock. I think that alone provides some protection from the downside. At least, that's the argument during recessionary times.

Don Barrett writes this: "My advice is to buy ADM stock, go to the mail box and get your dividend checks and sleep at night because this company is solid."

As for ethanol, the game is not over yet. Barrett continues:

"ADM is a stable company in an expanding market. Love it or hate it, ethanol will be around another year or two at least. Their exports and domestic sales are going to increase as the worlds population grows and I think they could have tremendous growth in exports. Share prices should continue to grow and their earnings will follow suit and they pay a 1.1% dividend which should grow as earnings do."

Limited downside

As a Rational Investor, I think the downside is indeed limited here, given the defensive nature of the stock. We are indeed in recessionary times, and owning Archer-Daniels makes a lot of sense to me.

The added benefit of growth fueled by the desire for alternative energy combined with global economic expansion offers a growth component that can be purchased fairly cheaply at the moment.

By Jamie Dlugosch

Dlugosch, a former Strategy Lab champ who first played the game in 2004, is the executive editor of InvestorPlaceBlogs and StrategyLabOpen.com. He reports regularly on what Open players are buying and selling, and what they're saying on their blogs.