08-22-2014, 11:04 AM
(08-22-2014, 10:35 AM)Slowlife Wrote: Thought I'd bring this back rather than start a new thread. What do you think about DE laying of 460 employees? I like DE for their dividend growth rate and low payout ratio, but I am a little concerned about earning growth with declining demand. I think the layoffs will help the company in the long run and am seriously thinking about buying in here. I'm also a little confused because most of what I read shows people like the stock, but the price keeps going down. Would you or are you buying here and why?
Deere is a cyclical company and right now the stock is lower because of fears of a bottoming of the agriculture equipment replacement cycle due to a potentially record corn crop. The anticipation of the big crop has caused the price of corn to drop by roughly 35% in the last year and more than 50% from its recent highs. Other crops like soybeans and wheat have also dropped in price.
So what you have is a high quality company with a long history of growth seeing a temporary hiccup due to the macro conditions of expected lower farm income.
Personally, I think the long term future for Deere will be just fine, but earnings will be hurt in the next 6-12 months, which is why the stock has sold off and currently has a PE ratio of around 10. Other than the big drop due to the 2008/2009 recession, Deere hasn't seen a dividend yield over 2.5% since late 2001. With the yield currently at about 2.8%, I think this is a nice place to start a position.
The world will always need food and farmers will always need equipment to grow it. The company was smart in cutting staff to save costs in the current environment. Long term I like the stock and own it.
I currently have a full position with my most recent buy being last July at $82.65, and the price is getting close to that point once again. The stock would yield 3% at $80 per share, and I think I may get interested in adding more again around that price.