Deere & Company (DE): Top Investment in the Agro-Machinery Sector?

Future outlook

The historical correlation between corn prices and the stock prices of agricultural equipment manufacturing companies has been mostly evident during periods when there is an increase in demand, and not when there is a shortage of supply. Corn supply has very little to do with the stock prices of these companies.

There are some doubts surrounding predictions about whether corn prices will actually fall due to droughts in some corn-producing regions. These droughts might raise corn prices, giving a push to stock prices. Nevertheless the uncertainty regarding the price is still there.

Fundamentally, the five-year, EPS growth forecast for Deere is more than 20%, which is much higher than the commercial vehicles and trucks industry (8.9%). The discount in the company’s P/E ratio as compared to the industry also suggests that the stock is undervalued and will pick up sometime in future.

Given Deere’s strong fundamentals compared to its peers in the industry, and the fact that it has been showing higher profitability margins and capital returns, the stock is expected to be a good investment for an investor who can stay invested for at least two years. Given the uncertainty of corn prices and the subsequent effect on stock prices, any short-term gains might not be sustainable.

The article Top Investment in the Agro-Machinery Sector originally appeared on Fool.com.

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