Buffett Rides with Deere
03/03/2015 8:00 am EST
It’s always nice when your ideas about the value of a particular stock gets the seal of approval from an investor with no less of a reputation than Warren Buffett, suggests John Dobosz, editor of Forbes Dividend Investor.
Newly released 13-F filings with the US Securities and Exchange Commission reveal that Buffett’s Berkshire Hathaway had accumulated 17.1 million shares in Deere & Co. (DE), a 5% stake that was worth $1.51 billion at the end of 2014.
Deere was originally recommended here on July 15, 2013 at a dividend-adjusted price of $81.27 and it has been on the Top 25 since last September.
Recently at $92.75, we’ve enjoyed a total return since recommendation of 14%, and even though the stock spiked 3.15% higher after Buffett’s stake became public, valuation suggests that there is plenty of upside left in shares of the maker of tractors and other agricultural machinery.
Deere trades for 0.94 times trailing 12 months of sales, 9% below its five year average price to sales ratio, suggesting a stock price of $101 per share if it reattains average valuation on this measure.
Looking at enterprise value to EBITDA, the discount is 7% from the five-year average. As a multiple of assets, Deere trades for 3.5 times book value and would need to appreciate by 20% to get to its five year average price to book value ratio of 4.2.
It would not be unusual to see Deere digest some of today’s gains before moving higher, so ideally, wait for a pullback to add to or initiate a position. If you own Deere, hang on to it. As with all stocks, I recommend using a 10% trailing stop loss to tell you when to get out.
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