A key theme for the current five-year bull market: Bigger is not always better.#-ad_banner-#

GE (NYSE: GE) is the nation’s largest industrial firm, yet its shares continue to lag behind the broader market by a wide margin. IBM (NYSE: IBM) has one of the largest revenue bases in the tech sector, but it’s trading at two-year lows. And in the agricultural sector, Archer Daniels Midland (NYSE: ADM), has underperformed the S&P 500 by nearly 60 percentage points over the past five years. 

Yet it’s unwise to lump these three firms together. IBM and GE must make major changes to their business models to reinvigorate growth. ADM, in contrast, just needs to wait for industry dynamics to strengthen — and such a change may already be at hand. 

Analysts at Citigroup expect “2014 will be a big recovery year in Archer’s major operations.” They recently upgraded shares to “buy” with a $45 price target. 

The key factor driving ADM’s business is storage: The more crops that farmers grow, the more that ADM will prosper. A drought in the U.S. Midwest hampered business in the 2012-13 growing season, but according to the U.S. Department of Agriculture, the 2013-14 growing season has produced a record harvest, and the amount of tonnage being stored by ADM and its peers is at an all-time high. That’s why analysts expect earnings per share (EPS) to jump 40% this year, to around $3.25. Analysts at Citigroup see EPS hitting $3.70 by 2016.

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	(c) 2014 Archer Daniels Midland Company
	Analysts at Citigroup expect 2014 to be a big year for Archer’s major operations.

How does ADM benefit from robust farm production? As “the world will have record supplies of corn, oilseeds and wheat, (ADM will have the chance) to utilize our global storage and transportation assets,” Chief Operating Officer Juan Luciano said in a recent call with analysts, adding that those assets “will mean lower-cost inputs for our processing operations, and they will make all of our products more competitive versus substitutes.” 

Last fall, ADM sought to expand its presence in Asia by acquiring Australia’s GrainCorp for $2 billion. Australian regulators eventually blocked that deal, which has led ADM’s management to take a different approach with its balance sheet. Though other acquisitions can’t be ruled out, ADM appears increasingly inclined to start giving back to shareholders in the form of higher dividends and ongoing buybacks. 

In 2013, ADM paid off more than $2.5 billion in debt (while boosting cash by $1.3 billion), and as the balance sheet is now stronger, plans are afoot to buy back 18 million shares this year (which would cost the company around $700 million at current prices). And ADM’s recent decision to hike its dividend 26% — to $0.24 a quarter, good for a yield of 2.4% — is a sign of more to come. 

(Debt paydowns, share buybacks and dividends form the core of the Total Yield strategy, which has been shown to beat the market — and regular dividend investing — hands down. Click here to read our free research report about this strategy.)

Analysts at Citigroup think ADM will emerge as a major Total Yield provider if it eschews major acquisitions. However, these analysts note that if ADM did want to pursue deals, they think the company’s balance sheet is strong enough to “handle $15 billion in M&A, which could produce $1 in accretion” (meaning a $1 boost in EPS).

Meanwhile, ADM remains as a solid value play as well. Shares trade for less than 12 times projected 2014 profits and for a quite reasonable 1.25 times book value. 

Risks to Consider: Any deterioration this year in crop-growing conditions will impact ADM’s future cash flows and would push this stock back out of favor.

Action to Take –> ADM’s operations have been beset by a number of impediments in recent years, which I discussed in greater detail nearly a year ago. But ADM’s management has been trimming costs where possible, brought greater discipline to its capital allocation process, and become more focused on delivering money to shareholders. Indeed, the worst appears to have passed for this once-struggling company, and a path to rising profits, along with a comprehensive Total Yield strategy, make this a stock to own for 2014.

P.S. Our resident dividend expert Nathan Slaughter recently sat down for an exclusive interview with the man who literally wrote the book on the Total Yield strategy. Wall Street pundits are calling a “genius” and someone with “simply too many good ideas” — and for good reason. The strategy is so simple, we can’t believe more people aren’t investing this way. To watch the full interview, click here.