There are some industries where the most valuable asset a company can have is brand loyalty and good customer service. For most farms, equipment has to have a long life to justify its purchase, making customers less likely to go for a quick bargain or an unknown brand. A familiar name with a long reputation is key in this kind of market, and Deere and Company (NYSE: DE), which has been making farm equipment since 1837, is arguably the most trusted name in the industry for making a quality product. It also has a stellar reputation for good customer service, with an extensive dealer network that allows machinery to be serviced with a quick turnaround, meaning less downtime for farmers. Of course, a company like Deere is always at least marginally dependent on the strength of the agricultural market, but right now, farming is going (and growing) strong and should continue to do so through 2008. Agricultural revenue is up 24% in North America, where Deere controls over 50% of the Ag market, and Deere's been harvesting solid income with sales especially strong in the big ticket, high margin items, like combines and 100hp tractors. The South American market, especially in Brazil, is also booming, where Deere is making good progress against the market leader AGCO.
The outlook is less rosy in the construction sector, which makes up about 23% of Deere's revenue. Residential construction is down, and in the wake of the recent mortgage problems, that doesn't look like it's going to turn around any time soon. But non-residential construction is still in good shape; the accelerated growth of private non-residential building may be peaking, but public construction is going strong, and should continue to do so through the election year.
The earnings for the third quarter are due out November 21, and if the recent reports from other industry peers are anything to go on, we should see some good news here. Bear Sterns estimates that this stock should hit $165 in 2008, and, since it's trading in the mid-$150s now, it looks like a solid buy.
Type of Stock: Deere and Company is one of the most manufacturer and agricultural, forestry, construction and consumer lawn equipment; the company also manufactures component parts for both use in its own products and for sale to other manufacturers.
Price target: DE is a good buy anywhere under $150 -- the stock has some volatility and even traded today below $150.
Hilary Kramer,author of the newly released Ahead of the Curve, is a financial editor and money coach for AOL and an authority on investing.
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Reader Comments (Page 1 of 1)
11-06-2007 @ 2:08PM
wayne said...
Hilary,
I bought LXU and AMAT after your interview on Nightly business report and
both stocks have gone down since the show. Should I hold them longer?
I did well on MEA and sold today at 12.
Wayne