A funny thing happened on the way to the end of the first quarter on Friday, March 30.

After leading the stock market for most of the quarter, cyclical stocks started to lag the Standard & Poor’s 500 Stock Index.

Is this a sign of what we can expect in the second quarter as worries about economic growth take the steam out of profits linked to the economic cycle? I’d say, Yes. I think we’re seeing the first signs that the pendulum, which swung to optimism and drove this rally, is swinging in the other direction.

Let’s start with some numbers. Read more

Update Deere (DE)

With a cyclical stock—even a cyclical stock such as Deere (DE) that’s riding a long-term, multi-decade upward trend in global demand for food—investors are always looking for signs that the cycle is near a top. I think that explains the 3.98% drop (as of 2:45 New York time today) for Deere’s shares after the company announced earnings for the first quarter of fiscal 2012. (Deere is a member of my long-term Jubak Picks 50 portfolio http://jubakpicks.com/jubak-picks-50/

The problem was the discrepancy between Deere’s big beat on earnings—the company reported $1.30 a share versus the Wall Street consensus of $1.23—and its relatively tepid sales growth for the quarter of just 8% from the first quarter of fiscal 2011. The discrepancy continued in the company’s guidance for the rest of 2012.

The selling today is based on the big question raised by that discrepancy. Is this a top—a temporary top—in sales for Deere? Read more

Caterpillar’s earnings surprise is good news for all mining equipment shares

This morning, October 24, before the New York market opened Caterpillar (CAT) announced third quarter earnings of $1.71 a share, a positive earnings surprise of 7 cents a share.

Today, as you’d expect Caterpillar shares are up big—5.08% as of 2:20 p.m. New York time—and as you’d expect Caterpillar’s positive surprise has sent shares of other companies in the construction and mining equipment sector soaring.

And the more exposure a company has to mining—the strongest part of Caterpillar’s business this quarter—the bigger the gain. So Deere (DE), which has more exposure to farm than to construction equipment, is up 3.26%. Joy Global (JOYG), which is more of a pure play on mining than Caterpillar, is up 5.68%. And Titan International, which has big exposure to mining and has been beaten down more than either Caterpillar or Joy Global, is up 11.64%. (Deere and Joy Global are both members of my Jubak Picks 50 long-term portfolio http://jubakpicks.com/jubak-picks-50/ . Titan International is a member of my 12-18 month Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ )

It also probably hasn’t hurt Titan International that the company reports earnings on October 26, after the New York market closes, and that’s close enough to Caterpillar’s report date to make the momentum players jump on board in search of another earnings surprise. (Joy Global, by contrast, doesn’t report earnings again until December 14.)

Let’s not move on too quickly from Caterpillar’s earnings, though. Read more

The challenge for Deere (DE) isn’t revenue growth. Revenue grew by 24% in the fiscal third quarter, the company announced on August 17.

Controlling costs is the issue. Operating income in the quarter rose by just 12.5%. Raw materials costs, the company said, will be $700 million higher in 2011 than in 2010. That’s a $100 million increase from the company’s forecast last quarter.

That didn’t stop Deere from raising its forecast for net income for the full fiscal year to $2.7 billion from the prior forecast of $2.65 billion. But that 1.9% increase in projected net income lagged the 2-percentage point to 4-percentage point increase in the company’s revenue targets for all of fiscal 2011. (Deere’s fiscal year ends on October 31.)

If Deere is a core position in your long-term portfolio I don’t think you need to sell—the long-term trends toward higher global incomes and greater consumption of grains and grain-fed meat remain intact and Deere is a major beneficiary of those trends. (Deere is a member of my long-term Jubak Picks 50 portfolio http://jubakpicks.com/jubak-picks-50/ )

But I wouldn’t make adding to positions here my No. 1 portfolio priority either. Read more

Update Deere (DE)

The market apparently decided to be disappointed with Deere’s (DE) quarterly financial report issued before the open yesterday, May 18. The stock was down 1.5% as of noon New York time yesterday. And while it’s in the green today, it’s not in the green by much.

I think I understand why (and I care because Deere is a member of my long-term Jubak Picks 50 portfolio http://jubakpicks.com/jubak-picks-50/ ), but you sure have to dig below a lot of good news to find anything to be negative about.

But let’s get the shovels ready, shall we, and see if we can uncover the grounds for disappointment. Read more