John Deere (DE) manufactures heavy machinery that is used by farmers, loggers, and homebuilders. Deere sells products under the John Deere, Sabo, Frontier, Kemper, Green Systems, and Waratah brands. Deere is an iconic brand and one of the longest histories of business success of any company.
Deere is out of favor in the market and appears cheap not only relative to its history but also to the price of sectors with less assured long-term growth and also to its fellow industrials. For the long term investor, this is a great opportunity to acquire an high quality business cheaply.
The company has witnessed a small breakout in December after underperforming S&P 500 during much of 2013. The stock has rallied from $82 on December 2 to over $89.
Eight reasons to buy Deere at ~$89 a share:
- The company offers a solid dividend yield of 2.28% with a payout ratio of 29%. It has increased the dividend 5X over the past 10 years, a compounded annual rate of 17.46%.
- Deere trades at a P/E of 9.8, less than the industry average of 12.9 and its own historical 5 year average P/E of 15.3
- Deere has a long history of returning cash through aggressive share buybacks. During the past 10 years, it has repurchased shares worth $10.7bn and reduced the number of shares by 24%. In December, it increased its stock buyback program to an additional $8bn, about 25% of its market value.
- Berkshire Hathway owns nearly 4M Deere shares. It is a kind of company that Warren Buffett would love to buy at the right opportunity.
- Deere is levered to the rising global population that will need more food. It is aggressively growing its business outside US. Sales outside of US & Canada have increased 4.5X the level in 2000. International sales are over 35% of total Deere sales in 2013.
- Deere has consistently maintained a very high return of equity in the high 20s from 2004-2008 and in low 40s from 2011-2013.
- Barron's loves Deere. Barron's has picked Deere as one of its top 10 favorite stocks for 2014.
- On the technical side, the company is trading above its 50-day and 200 day simple moving averages.