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1 More Reason To Buy John Deere

Last month showed you why you should buy John Deere in the article This Top Robotics Stock Isn’t One You’d Think Of.

Today, I want to show you 1 more reason to buy shares in this company John Deere after its most recent earnings.

You can read the full article above.

But if you don’t want to; here’s a quick recap of why I said you should consider buying John Deere.

Why Deere & Co Is A Great Robotics Stock

Huh?

Is that a typo?

Deere & Co (DE) is the world’s leading manufacturer of agricultural equipment… It’s not a tech company?

That statement and question is half right.

It is the world’s leading manufacture of agricultural equipment… But it’s also a leading innovator in agricultural equipment as well.

And its equipment and users are becoming faster, smarter, and more efficient at farming due to its technological innovations.

Much of its heavy-duty equipment now comes with GPS systems that can be use with minimal human support due to the sensors, chips, and equipment in them.

And some are even fully autonomous now.

This trend toward automatic equipment is only going to increase in the future as the world’s population rapidly increases.

Its estimated that by 2050 there will be around 10 billion people living on Earth.  If this is true, we’ll need 50% more food than we’re currently growing today to feed everyone.

And this is where Deere and its technology comes in…

As the world’s leader in agriculture manufacturing and equipment it already helps produce much of the world food.

But now with technology and robotics its helping transform farming and agriculture to meet the worlds food needs in the coming decades.

Here’s one example…

Above is a picture of 100% autonomous electric tractor.

The company is also developing semi-autonomous tractors.

Autonomous drones that will spray herbicides and insecticides on plants and trees.

And much more.

These kinds of automated or semi-automated equipment allows farmers to grow and produce more food out of the same land to help feed the world.

At higher rates of efficiency and productivity… And in ways that are better for the environment since many of its products will be fully or partly electric.

One estimate on potato fields showed that the use of Internet of Things related equipment led to…

  • 15% less usage of pesticides.
  • 25% less water consumption.

Both of which are better for farmers in terms of lower costs to them.

This is also better for us because the foods we’re eating will have fewer pesticides on them and polluting our water supplies.

And this combined with the far lower water usage is also great for the environment as well.

Even though this is being built, developed, and tested now, this is largely for the future though… And it doesn’t tell you how the company is doing today.

Deere is the world leading manufacturer of agriculture products today… And this allows the company to earn large profits and cash flows so it can invest to be a leader in the future too.

Over the last 10 years it earned a total of $32.6 billion in operating profit against a market cap of $55.1 billion as of this writing. And its operating profit margin over the last decade averaged 11.5% per year.

I look for any company to produce above 10% margins on a consistent basis to consider as an investment.

Its produced $2.6 billion in total free cash flow in the last 10 years.  And its FCF/Sales margin averaged 1% every year in this time.

On this metric I look for anything above 5% on a consistent basis. Deere’s isn’t great on this metric… But it’s also not the full story.

Its free cash flow production is so much lower than its operating profits because its spending so much on research and development and capital expenditures.

These are things like updating equipment, developing equipment, etc.  Things that are necessary to sustain its business now.  But also, to continue helping it grow into the future.

Its spending so much on capital expenditures and research and development now so that it can remain the leader in this space into the future.  And help us feed the world.

Plus, it pays an 1.7% dividend just to own its shares.

John Deere is an amazing operating company and should remain a leader well into the future with its advances in robotics.

Plus, its undervalued too…

Its current P/E is 19.9.

Its current P/CF is 9.8.

And its current forward P/E is 20.8.

I consider buying companies that have ratios below 20 on all these… As of this writing Deere falls below this metric which means its undervalued.

For all the reasons mentioned above – and the others I didn’t – I recommend you buy Deere.

Not only because it’s a fantastic company now.  But also, because it will benefit greatly from the increased usage of robotics in the next several decades to help feed the world.

Conclusion

Deere & Co is a fantastic company.

Its dominated its industry for decades which allows it to earn enormous profits.

This allows the company to reinvest its capital into R&D and capital expenditures to continue staying ahead of competitors.

And this allows it to transition well into The Internet of Things arena so it dominates that too.

If you’re looking for a great Internet of Things and robotics stock to own don’t look to buy one of the tiny companies and hope you get a tech unicorn… Yes, some of them will explode to huge success in time.  But many others will implode and go bankrupt.

It will be near impossible to tell which is which in the coming years.

But one thing is for sure, Deere will still be around.  It will still dominate.  It will still generate enormous profits and cash flows.  And it will continue compounding the value of your investment well into the future.

***

This was proved out further on August 20th, 2020 when John Deere released fantastic quarterly earnings.

  • Revenue fell 11% to $8.9 billion in its 3rd quarter of 2020 compared to $10 billion in the 3rd quarter of 2019.

But…

  • Operating profits rose 16% to $1.4 billion in the 3rd quarter of 2020 from $1.2 billion in the 3rd quarter of 2019.
  • Costs fell by 13.5% to $7.7 billion in the 3rd quarter of 2020 compared to $8.9 billion in the 3rd quarter of 2019.
  • And cash levels rose 141% to $8.2 billion in the 3rd quarter of 2020 compared to $3.4 billion in the 3rd quarter of 2019.

This would be just an okay earnings report in normal times… But during the worst economic crisis we’ve seen in 100 years this is spectacular.

Many companies in today’s climate are unprofitable on the metrics mentioned before.  And they’re having to cut dividends massively.

These results allowed John Deere to keep its dividend intact during the crisis… And this shows the great business model and resilience of the company.

Since we recommended John Deere originally to you on July 28th, 2020 its stock is up 19.2% in only 1 month.

From $175.79 per share to $209.57 per share as of this writing.

This is an annualized return of 724.2%.

If you’re earning 10% investment returns every year, you’re doing well so this is phenomenal.

The large increase in its share price in only one month is largely due to these impressive quarterly results… And to a smaller degree decreasing trade tensions between the US and China.  But that’s a conversation for another article.

John Deere will continue to not only survive but thrive during this pandemic and after due to its unique competitive advantages.

For this reason – and the ones in the earlier article – we recommend you buy John Deere stock for the long term.

Use the following links to some of our recent articles to learn other ways to protect yourself and your investments in these uncertain times. 

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.


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