Per a 13D filing this week, Cascade Investment upped its stake in Deere & Company (NYSE:DE) by three million shares, good for a 12% expansion. Cascade’s last major purchase of Deere came in August of 2011; at the time Gates’ firm owned 24.5 million shares. Cascade’s ownership of Deere has now moved from 5.8% of Deere’s outstanding shares to 7%.
Cascade Investments is the investment company responsible for managing the majority of Bill Gates’s wealth, which is controlled by Gates and managed by Michael Larson. Both billionaires Warren Buffett and Ken Fisher are also top fund owners of Deere, with Buffett being the top owner at the end of 3Q (check out other Warren Buffett-Ken Fisher picks).
Deere is the farm and heavy equipment manufacturer that is expected to grow revenues by 5% in 2013 after a 13% gain in 2012. The equipment company expects high crop prices and strong farming income to drive it sales growth. There is still much uncertainty in both the construction and farming sectors, based on a poor economic backdrop and roller coaster-like weather conditions, but third quarter financials showed equipment sales growth of 14% year over year and EPS of $1.75 (up 13 cents yoy). Deere saw a vast downturn in its business beginning in 2008, but a rebound in core markets has pushed the stock up by 60% since the its bottom.
One of the best peers for Deere is CNH Global NV (NYSE:CNH), another large company that manufactures both farm and construction equipment. CNH presents interesting volatility – with a 2.7 beta – that might concern some investors, but it in part, has helped push the stock price up 35% year to date. Fiat made a recent bid to combine with CNH while buying the 12% of shares it does not own; this move could slow aggregate growth and temper investors’ expectations. Fiat’s trucking business has seen continued weakness – coupled with CNH’s lackluster farm business – that will mean more trouble for the duo. Fiat recently upped its offer to include a $10 dividend to CNH shareholders in addition to its 3.8-to-1 share proposal plan.
Caterpillar Inc. (NYSE:CAT) is the world’s leading construction equipment manufacturer and is another key competitor of Deere. Revenues are expected to be up 12% this year, followed by a 3% gain in 2013, after a 41% advance was posted in 2011. A better global economy led to robust growth in CAT’s machinery and power system businesses over the past couple of years. Although global economic uncertainties have recently started to limit CAT’s sales, there should be ongoing growth due to accelerated equipment replacement, due to above-average levels of depreciation in its North American segment. On top of that, sales growth is expected to rise from product demand related to the development of emerging markets. Bill Gates loves CAT, taking a new position in 3Q of over 10 million shares via his trust (see Bill Gates’s newest picks).
Terex Corporation (NYSE:TEX) is the most volatile of our five stocks with a beta of 3.0. Sales are expected to rise 17% in 2012 and 8% in 2013. This expected increase should be driven by the 2011 acquisition of Demag Cranes that will assist with product diversification. Terex should manage to see similar growth avenues, as that of CAT, but slowing growth in China and a stagnant Eurozone are obviously cause for concern. Billionaire Jim Simons – founder of Renaissance Technologies – was a top investor last quarter, upping his stake by nearly 3500% (check out Jim Simons’s latest picks).
Kubota Corp (NYSE:KUB) expects solid growth that includes 14% revenue expansion in FY2013, based on robust farm equipment demand in Japan. Asian gains are expected to offset weakness in other areas, mostly Europe. Kubota’s restructuring plan should help drive its long-term EPS growth of 12% (annually) through 2017.
To recap: none of the stocks mentioned above trade as cheaply as CAT at 9x earnings. Deere and CNH trade relatively cheap at 11x and 10x, respectively, where Terex (22x) and Kubota (18x) trade at the high end of the valuation range. We see CNH as discounted for a reason; regardless of the Fiat merger, there looks to be weakness in all of its key markets. Gates’s recent bet on Deere is a solid value play, and we are also encouraged by his other big bet on the construction industry: CAT. Unlike Deere, we believe CAT is the best value play at only 9x earnings and a PEG of 0.7. Both industry giants – Deere and CAT – also pay dividends that yield over 2%.
