Selling Irrigation Equipment Maker Lindsay on a Forecast of a Long Dry Spell in the Farm Sector

12/22/2014 8:12 pm EST

Focus: COMMODITIES

Jim Jubak

Founder and Editor, JubakPicks.com

Because of record harvests, farmers aren’t rushing out to buy new farm equipment, so MoneyShow's Jim Jubak has decided to sell his shares of this manufacturer and distributor of agricultural equipment as of today, December 22.

I’ll be selling Lindsay (LNN) out of my Jubak’s Picks portfolio today Monday, December 22.

Partly that’s because I need to raise some cash for my recent buy of the WisdomTree Japan Hedged Real Estate ETF (DXJR). As I laid out in my December 19 alert on that ETF, I’m looking for exposure to Tokyo real estate after the victory of the Abe government in Japan’s snap election solidified the weak yen/low interest rate policies of Abenomics.

But a good part of this sell is simply my read on the current down cycle in the farm sector.  As I wrote in my December 12 post on Deere (DE), lower prices for corn, wheat, and soybeans because of record harvests for those commodities have cut into farm incomes so that farmers aren’t rushing (or even ambling) out to buy new farm equipment—whether it’s Deere’s big green tractors or Lindsay’s pivot irrigation equipment. Deere’s read in the latest sector update from that company is that the downward leg of this cycle is likely to hold for all of 2015.

Lindsay’s last quarter beat Wall Street earnings expectations—by 31 cents a share—but that was largely because expectations were so low. Revenue still fell 0.6% year to year and revenue from the company’s irrigation equipment unit dropped by 2%. The backlog of unshipped orders did rise year on year but the increase from the second quarter’s $73.6 million was just $3 million.

I’m going to sell these shares now—with a 39.53% gain since I added them to the portfolio in December 2010. I’d like to revisit the position later in 2015 or in early 2016 when it might be possible to see a bottom in the farm sector.

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