Stock Pick of the Week

THIS WEEK’S PICK: John Deere

About: John Deere is the brand name of Deere & Company, an American corporation that manufactures agricultural machinery, heavy equipment, forestry machinery, diesel engines, drivetrains used in heavy equipment, and lawn care equipment.

Chris Napier, Momentum Securities Portfolio Manager for the KZN region, shares his insights.

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Transcription:

Good day. Our Stock Pick for this week is a company that thrives in the US heartlands, and is as American as they come. That stock is Deere & Co., or more affectionately known as John Deere.

We added the stock to our International Equity High Street portfolio last quarter, and the stock is effectively traded range bound and sideways since. Our main aim in doing so was because of the planned infrastructure spending that Democrats in the US have been trying to get passed in the Senate, which they have effectively now done.

This project should see upgrades to roads, bridges, ports, rail, water, the power grid, and even upgrades to broadband internet, with the focus here on more rural areas that receive little coverage.

It's easy to see how Deere & Co. will benefit, as the need for construction machinery be very apparent. This includes new machines, as well as servicing and replacing parts where existing machines such as tractors, harvesters, excavators, loaders, graders, the list goes on… But, given their diverse product offering, the benefits won't stop there. The innovation will assist farmers in reducing fuel costs, and monitoring and reducing pesticide and herbicide usage, effectively equipping farmers with a smarter workhorse of the future.

What we already see today is that machines can pre-order their own parts without the need for owner-intervention. That speaks to the potential of why the share price has been so range-bound. Well 2 things: the infrastructure bill took a lot longer to pass than originally anticipated, and currently 10,000 hourly workers are striking over better pay and benefits at Deere & Co.

The market is expecting yearly revenue growth in their teams over the coming years, which talks the positive outlook of the company. Given the recent pullback in price, I do feel there’s a decent entry point into the stock, especially since they continue to surprise given its beaten its early earnings estimate of every quarter for the last four quarters.

Now Deere & Co. last traded USD 355.20 as a market cap of USD 110 billion, and revenue for the last financial year was USD 35.5 billion. It’s currently on a price-earnings of 20.3.

Your all-time high was USD 400 last year in May, and the charts are showing some good momentum. So, firstly, I would keep an eye on strike action in the short-term and, as I have mentioned before, these are decent entry levels.

Until next time.