Buy Deere & Co (DE)

Another quarter (Q2, announced in mid-May 2009), another depressing take on demand for Deere’s (DE) agricultural and construction machinery. On the farm equipment front, the problem isn’t in North America, where sales fell just 4% from the first quarter of 2008, but overseas, particularly in South America and Eastern Europe. Overall, though, the farm equipment segment remained profitable. Wish I could say the same for the company’s construction and forestry equipment businesses. Revenue in those segments fell by 55% and the segment showed an operating loss of $75 million. The company now expects those businesses to continue to get worse through the rest of 2009. Investors who own Deere are in the stock for the long term because of the promise of  its best-in-the-world farm equipment business in a period (of a decade or more) when farm incomes and food demand are climbing.  When I picked Deere for Jubak’s Picks on December 11, 2007, it was in a column titled ‘How to profit from rising food prices.’ A better headline for today might be ‘How to survive until food prices start climbing again.’ (I’d say we’ll see food inflation again in 2010.) I don’t see Deere facing a collapse in its sales in 2009 or significant balance sheet problems, but this is a stock to own for 2010. As of July 3, I’m setting a new target price of $56 for June 2010. That’s up from my prior target of $35 by December 2009. and the company is well-positioned for a turnaround in 2010. (Full disclosure: I own shares of Deere in my personal portfolio.)