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Is John Deere Still A Buy After Hitting A Record High Share Price?

Over the last few months, I’ve written two separate articles telling you to buy John Deere stock for your retirement portfolio.

Today, I give an update after it released its latest quarterly earnings and answer – Is John Deere Still A Buy After Hitting A Record High Share Price?

You can read the full articles 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 manufacturer 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.

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.

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 thesis to invest in Deere for its great performance now and into the future continued to play out in August 2020 when it last released quarterly earnings that were fantastic…

And it continued to play out now after it released it latest quarterly earnings on February 19th, 2021.

  • Revenue rose 19% in the year-to-year quarterly period to $9.11 billion.
  • Operating profit rose 154% in the year-to-year quarterly period to $1.64 billion.
  • And net income rose 137% in the year-to-year quarterly period to $1.22 billion.

These are already record numbers… But Deere expects to break more records for the full year 2021.  Because it also raised its full year 2021 outlook as well.

It now expects each of its business lines to see 5% to 20% growth.

And each of the regions it operates in to see between 5% and 10% growth except Asia where it expects a small decline.

This during one of the worst economic situations we’ve dealt with since World War 2.

These record numbers aren’t just impressive because of this… They also show the extremely powerful business Deere runs.

Because of this Deere shares have continued skyrocketing since I first recommended you buy them on July 28th, 2020.  Since then, its stocks gone up 92% from $174.90 per share to $337.51 per share as of this writing.

Its gone up so much since July that its stock chart when you pull out and look at it all the way to the 1970’s it goes almost straight up in 2020.

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

And unfortunately, because its shares went up so much in such a short amount of time it’s now too expensive to buy.

Its P/E is now 30.9.

Its P/CF is 13.1.

And its forward P/E is 26.8.

If you bought back in July congratulations, you’re sitting on a huge gain since then.

If you didn’t buy in July, be patient and wait for it to become undervalued again.

Deere will remain a great stock for a long time… You just need to be patient enough and wait to buy more of it until its cheap enough to do so.

Until then, 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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