Buying Deere Today
“Don't bet on the end of the world, it only happens once and the odds are against you"
-Art Cashin (Director of Floor Operations, UBS Financial Services)
The Portfolio Performance
The portfolio is UP +4.39% YTD
The S&P 500 is UP +2.43% YTD
Starting a Position in Deere
This morning Deere and Company hit my first buy target at around $410 per share. The portfolio wants 40 shares for a full position, so I took an initial 10 shares to start building a position. As I'm writing this post, the stock is down a buck to around $409. I suspect that the stock will keep trading down a bit as we approach the February 17th Q4 earnings call date. I never want to call an exact bottom as a stock price fluctuates, so I'm taking 25% of what I want to hold long-term. Deere also pays a 1.13% ($4.80/share annually) dividend, which I'd like to collect all year. I've left a note on the portfolio that I'm watching the $385.53 level for another purchase of 10 shares. If a further pullback continues past that price, I'll look for a new watch price target.
Deere is currently the world leader in precision agriculture and remains focused on revolutionizing agriculture with technology to make farming automated, easier, and more precise across the production process. 10 analysts revised their earnings estimate upwards in the last 60 days for fiscal 2023. Over the last five years, returns on capital employed have risen substantially to 17%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased by 32%. This can indicate that there are plenty of opportunities to invest capital internally and at ever higher rates, a common combination among multi-baggers. Deere & Company sales for its fiscal year ending in October rose 19 percent to $52.6 billion. Net income for the year rose 19 percent to $7.1 billion compared to $6.0 billion in fiscal 2021.
In addition to agricultural equipment, Deere also makes construction and forestry equipment that competes with Caterpillar, Komatsu, Volvo, and others. Net sales in the construction and forestry segment totaled $12.5 billion for the year, up 10 percent over 2021. Operating profit grew 35 percent to $2.0 billion compared to $1.5 billion in 2021. Deere's management says the construction and forestry sales outlook for fiscal 2023 is up about 10 percent, which includes an 8 percent increase in price realization.
Looking forward, the optimistic view is that Deere’s results will likely reflect the favorable farm fundamentals. Higher commodity prices are producing higher farm income. Typically an increase in income generates sales of agricultural equipment. Analysts believe that Deere will report strong replacement demand boosting its top line. While supply-chain issues, and high production costs, are likely to have impacted the company’s margins in the quarter, Deere has shown the ability to raise prices and maintain shipment volumes in the face of supply-chain shortages.
Long-term, I'm interested in the innovation in Deere's R&D department. Autonomous tractors, GPS-controlled selective spraying, and more are all emerging into the market. What's next is hard to say, but I won't bet against the innovation at Deere.
ACTION
DE BUY 10 @ $410.05
Keep Me Honest 2023
"Markets don't go to zero, Portfolio's do.
Buy quality, be patient...and look twice for motorcycles."
- Clay Baker
Stay Invested,
Clay Baker
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Clay's Rules
Rule #1: Don't lose money
Rule #3: Portfolios go to zero, markets don't, Stay Invested
Rule #4: When good stocks you own drop 10% below your cost basis, add shares
Rule #5: Bull markets aren't sustained without the Transports
Rule #6: When Forward P/E is lower than TTM P/E, expect earnings to increase
Rule #7: When an investment bank sells below book value, buy it
Rule #8: Tips are for waiters. Do your own homework.
Rule #9: Don't sell a stock because you're bored with it. Do your own homework.
RULE #10: Being early and being late is the same as being wrong...move on.
Rule #11: Investing is easy. Waiting is hard; waiting is the hardest part.
Disclosure: I am personally invested long in some or all of these stocks or funds that appear in the Stay Invested portfolio and may purchase or sell shares within the next 72 hours. I am also invested in other stocks and funds that do not appear in the Stay Invested portfolio but may be mentioned or related to this article. It is not my intention to advise or encourage the purchase or sale of any security. I am invested long in these securities mentioned in this post:
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I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. This article is not intended to offer investing advice, guarantee 100% accurate predictions, or to be interpreted as providing a personal recommendation.
