Is Anything Wrong with Deere?

05/21/2014 12:01 am EST


Jim Jubak

Founder and Editor,

In recent earnings, Deere & Co. disappointed the markets on its revenues but MoneyShow's Jim Jubak considers whether this should concern long-term investors or not.

There’s only one problem for a stock with a record year, which is, you can’t beat it, and that’s what’s really going on with Deere (DE). Deere announced earnings on May 14 before the market opened, it beat expectations by about $0.16 a share, a huge beat, but revenues fell short. We had a 9.9% decline in revenue year-to-year and the problem really is that 2013 was a record—or near record—year for farm incomes. Deere prefers a measure called cash to farmers, total cash income to farmers, which measures cash and not net income, and 2013 was still a record year on that measure. Deere’s projections—and Deere always does this—a long elaborate look at all of the agriculture markets in the world. Their projections for 2014 see about a 3.3% decline in cash flows to farmers for the year. That’s not a huge decline from 2013, so you wouldn’t think the stock would sell off a whole lot, but it’s down about 2.4% at the close on the 14th, so this is a big deal. People say, “well, what’s wrong with Deere?”

There’s nothing wrong with Deere. Deere is doing just fine. It’s just that you can’t beat a record year every year, so when Deere came out in its conference call and said, “hey, for fiscal 2014, we’re projecting near record earnings.” The market said near record, that’s not good enough and sold off the stock. Deere is a kind of cyclical, operating within a long-term positive uptrend. The long-term positive uptrend is increasing global demand for food as the population rises, as income in the developing world rises, so that’s a long-term trend that you want, but within that, you get the cycles that depend on the notoriously fickle agriculture markets, whether farm incomes, etc., etc., so for all of that Deere is down. Deere, in fact, over the last 12 months is basically flat. We’re looking at a stock that hasn’t moved really since January 2013. Longer term, I added it to my Jubak Picks 50 Long-Term Portfolio. It’s up about 150% since December 2008. Timing is everything with Deere. Holding it for the long-term makes sense and this is a stock that’s riding a long-term trend and cyclical things really just need to go, “eh, that’s okay.

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