Update Deere (DE)
Valuing a cyclical stock such as Deere (DE)—which reports fourth quarter fiscal 2010 earnings on Wednesday, November 24–is always difficult. You have to figure out where the company is in the revenue cycle from peak to trough and back again. And you have to figure out how long the cycle will last.
In Deere’s case, the Wall Street projection is that the company is about to hit the top of the cycle. Earnings growth, according to Wall Street, will hit an astonishing 311% in the fiscal year that ended in October 2010 and then head downward, as the cycle peaks to 35% in the quarter that ends in January 2011 on its way to just 16% growth for the fiscal year that ends in October 2011.
That projected peak seems early to me, considering that the company’s business really only bottomed in late 2008 through late 2009, and considering that farm prices seem to be headed higher, not lower, for the foreseeable future. According to the Association of Equipment Manufacturers, sales of four-wheel drive tractors were up 83% in October 2010 from October 2009 and sales of large row-crop tractors climbed by 54%.
That sounds like acceleration rather than a peak to me. Read more
Update Deere (DE)
Deere (DE) is both a stock and one of the most reliable indicators of the fortunes of the agricultural sector.
No matter whether you own Deere (the shares are a member of the Jubak Picks 50 long-term portfolio) or are waiting for a turn in the sector as a whole, you should be very happy with the earnings, revenue, and guidance that Deere reported this morning, February 17. Read more
Sell Deere (DE)
Sometimes the words are worse than the numbers. And that’s the case with Deere’s (DE) November 25 guidance for fiscal 2010, which began on November 1, 2009.
The company said fiscal 2010 earnings would come in at $2.12 a share on a 1% decline in sales. First quarter fiscal 2010 sales will be down about 10%, the company projects.
That’s no big deal and I’d be inclined to sit those numbers out and wait for the turn in Deere’s business that everyone expects in fiscal 2010.
Except for the words that the company used in describing fiscal 2010 sales. Those words lead me to sell Deere out of my 12-18 month Jubak’s Picks portfolio. I’m keeping the stock in my long-term Jubak Picks 50, however.
Here’s why I’m selling today. Read more
