As investors troll the market for bargains after the pullback since the election, they could do worse than following the lead of Berkshire Hathaway. Warren Buffett's investment vehicle recently picked up farm equipment maker Deere (DE), and the stock has also had some other recent positives.
Here are some key recent catalysts for Deere:
- Warren Buffett's Berkshire Hathaway took an almost 4-million-share stake in this agricultural equipment maker in the third quarter.
- The worst drought in 50 years has led to predictions of the poorest corn crop in over a decade. There are increasing predictions of $9 to $10 a bushel of corn for those farmers who have product to deliver (the rest will get crop insurance, so it's a win/win situation). This should bode well for tractor demand.
- After falling for months, consensus estimates for both FY 2012 and FY 2013 have stabilized. FY 2013's estimates actually have risen some 3 cents a share over the past month.
- TheStreet reiterated its "Buy" rating on the stock last week.
Deere & Company provides products and services primarily for agriculture and forestry worldwide.
Here are four additional reasons why Deere is offering good entry point at $85 a share:
- The stock is selling at just over 10 times forward earnings, a discount to its five-year average (14.2).
- The stock is also selling in the bottom third of its five-year valuation range based on P/E and P/CF.
- Deere also provides a decent yield of 2.1%. It has raised its dividend payouts at a better than a 14% annual clip over the last five years.
- Deere has a reasonable five-year projected PEG (1.10). It also should benefit as growth in China improves and it gets past its recent execution problems.