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With the SPY (as a proxy for the market) down 17%-18% from its recent high of $137.18 in April 2011, most stocks’ earnings estimates for the rest of 2011 have been cut by analysts. A few haven’t. The agriculture equipment makers all beat and raised in their last reporting quarter.

CNH Global NV (CNH) beat by $0.34 ($1.33 versus and estimate of $0.99). Agco Corp. (AGCO) beat by $0.20 ($1.35 versus an estimated $1.15). Deere & Company (DE) beat by +$0.06 ($2.12 versus an estimated $2.06).

All of their FY2011 average analysts’ EPS estimates are higher than they were 30 days ago. Is this unusual in a market down 17%-18%? Yes, it is. Most stocks have had their ratings cut. The US debt rating was cut by S&P. The banking system in Europe has come under attack (for its possible failure). US banks have been under attack.

World GDP estimates were lowered by Morgan Stanley (MS) to 3.9% for 2011 and 3.8% in 2012 (from 4.2% and 4.5% respectively). After the market closed Friday Aug, 19, 2011, Goldman Sachs (GS) cut its US GDP estimates for Q3 and Q4 2011 to 1.0% and 1.5% respectively.

This could impact the markets on Monday Aug. 22, 2011. However, the GS cut is really more of the same after the Morgan Stanley downgrade of its World GDP estimates. The market will likely move Monday on other news coming from Europe during the weekend. Plus Hewlett Packard (HPQ) accounted for fully one third of the DJIA’s fall on Friday Aug. 19, 2011. If you consider the extra downward psychological push HPQ gave the rest of the DJIA stocks, you may decide it is about time for a bounce.

The news from the latest World Crop Report (WASDE - 497 Aug. 11, 2011) shows very mixed results in amounts produced and overall supplies. However, the price ranges forecast for grains are up overall. The 2011-2012 season average farm price forecast for wheat is projected at $7.00 to $8.20. This is up from last month’s projection of $6.60 to $8.00.

The season average farm price for corn is now projected at $6.20 to $7.20. This is up $0.70 on each end of the range from last month. Soybean prices are projected at $12.50 to $14.50 per bushel. This is up $0.50 on both ends of the range.

Soybean meal prices are projected at $355 to $385 per short ton. This is up $10 on both ends of the range. The farm price for all rice is unchanged from a month ago. In sum this data all means that farmers will be ever more anxious to maximize their crop yields. The higher prices mean they will likely have more money to spend on farm equipment. It means the raised earnings expectations of the above companies may be real even in the currently troubled world financial state. People do still need to eat.

Given that the macro fundamentals support a buy conviction, let’s look at the micro fundamentals in the table below. The data are from TD Ameritrade and Yahoo Finance.

Stock

DE

AGCO

CNH

Price

$69.01

$35.14

$26.31

1 yr Analysts’ Target price

$101.31

$58.22

$49.00

Predicted % Gain

47%

66%

86%

PE

11.86

9.49

8.27

FPE

9.36

7.71

6.94

Avg. Analysts’ Opinion

2.0

2.4

2.3

Miss Or Beat Amount For Last Quarter

+$0.06

+$0.20

+$0.34

EPS % Growth Estimate for 2011

36.90%

76.30%

62.50%

EPS % Growth Estimate for 2012

15.50%

11.50%

12.10%

5 yr. EPS Growth Estimate per annum

10.80%

12.50%

15.33%

Market Cap

$28.96B

$3.39B

$6.31B

Enterprise Value

$51.57B

3.54B

$18.42B

Beta

1.65

1.91

2.67

Total Cash per share (mrq)

$8.38

$5.94

$18.30

Price/Book

3.85

1.09

0.78

Price/Cash Flow

7.37

7.11

5.95

Short Interest as a % of Float

1.57%

3.13%

1.15%

Total Debt/Total Capital (mrq)

77.65%

19.06%

67.00%

Quick Ratio (mrq)

--

0.89

1.49

Interest Coverage (mrq)

6.86

16.13

3.08

Return on Equity (ttm)

37.92%

13.46%

10.24%

EPS Growth (mrq)

17.40%

106.74%

125.72%

EPS Growth (ttm)

120.45%

200.72%

376.06%

Revenue Growth (mrq)

22.45%

35.32%

22.65%

Revenue Growth (ttm)

26.79%

26.94%

18.60%

Annual Dividend Rate

$1.64

--

--

Gross Profit Margin (ttm)

25.69%

19.51%

18.49%

Operating Profit Margin (ttm)

12.80%

6.62%

4.32%

Net Profit Margin (ttm)

8.43%

3.93%

3.63%

As you can see from the data above, each of the stocks is a fundamentally strong stock. My personal favorite is AGCO. It has low debt, and it has an average analysts’ 1 year price gain of 66%. CNH has an even better predicted price gain of 86%, but it has more debt. Plus CNH is a European company. With all of the trouble in Europe these days, I expect European stocks to flounder much more than US stocks. DE in contrast is its old great self. It is the market leader, but it has a lot of debt.

To counter this DE also has high expectations in China. It has a plant in Jiamusi to build combines. It has a plant in Ningbo to build tractors. It has a plant in the Tianjin economic and development area that manufactures components for tractors. It has a joint venture in Xuzhou that manufactures excavators. It is building a $50 million factory in Tianjin that will produce four wheel drive loaders and excavators.

It will build an $80 million factory in Harbin to produce mid and large sized tractors, sprayers, planters, and harvesting equipment. It has plans for a $60 million engine manufacturing facility in Tianjin. All these investments (and its US based investments) in its future may well keep DE the leader in agricultural machinery.

That’s a big positive if you are considering a company for a long term investment. Plus DE does have the best net profit margin of the three.

Let’s take a quick look at the charts of the above stocks to see if they can provide any technical insights.

The two year chart for DE is below:

click on images to enlarge

The two year chart for AGCO is below:

The two year chart for CNH is below:

Each of these stocks had been in a strong uptrend. Deere’s was the strongest uptrend, and that strength is continuing. Both AGCO and CNH are oversold on their Slow Stochastics sub chart. DE is showing its strength. It is significantly above oversold levels. Plus it may have the least broken chart. Still given the analysts’ recent revisions of earnings estimates upward for these stocks, all of them are likely to move upward from their current prices soon.

A recession has already been priced into these stocks. They could fade a bit more if the market continues downward. They all have high betas. Still they should all be set to begin recovery legs up soon. I especially like AGCO because of its low debt and still great price gain estimate. I think you can start legging into these stocks at almost any time. You could start out with smaller buys, if you are still worried about significant overall market downside.

Mr. Bollinger (of Bollinger band fame) was on CNBC on Friday. He suggested that the SPY (and other indices) may have already started a bottoming process. The first leg of the bottoming process pierced the lower Bollinger band to the downside. Mr. Bollinger thinks that if the second bottoming attempt does not pierce the lower Bollinger band to the downside, that should indicate a strong bottom has been put in. The same could probably be said for the above stocks, although they would still likely move with the market to a great degree.

The two year chart for the SPY is below:

As you can see from the above chart, the current price is significantly above the lower Bollinger band. Yet it is at a point at which it could easily find support from the last low. Investors should watch how this develops.

It could be an important turning point for stocks in general. As you can see by the volume sub chart, the volume does seem to be lighter in the latest move to the downside. This is a good sign. It may indicate dissipating downward pressure.

Further, Abbie Cohen a senior investment strategist of Goldman Sachs, said Friday that a US recession was unlikely. She believes the US markets have already priced in a very ugly scenario, which is unlikely to occur. In other words this may be a good time to buy if you are thinking with a long term perspective.

Good luck trading.

Source: Agriculture Equipment Stocks: Fundamentally Strong