The stock market has seen incredible gains in recent years, but these returns have not been evenly distributed. While high-flying tech stocks have driven much of the market’s advance, many strong, profitable companies with solid fundamentals have been left behind.
One of these overlooked gems is Deere & Company (NYSE: DE), the agricultural and construction equipment manufacturer. At current prices, Deere offers investors a rare combination of quality, value and growth potential.
An Industrial Powerhouse Trading at a Discount
Deere is one of the world’s leading producers of agricultural, construction, and forestry equipment. The company’s green and yellow farm machinery, especially its John Deere tractors, are iconic global brands.
Despite its dominance in the industry, Deere’s stock trades at a very reasonable valuation. Shares currently trade for around 11 times trailing earnings.
This is dirt cheap compared to the broader market’s P/E of around 20. Deere offers the profits and cash flows of an industrial leader at a big discount to the overall market.
While cyclical companies like Deere often trade at lower multiples due to the boom-and-bust nature of their industries, the company has proven its resilience and reliable earnings power.
Through wars, recessions and every kind of market environment, Deere has remained profitable and increased its dividends for over 25 consecutive years.
Read More: 5 Top Tech Stocks Poised for Long-Term Gains
Strong Growth Across All Segments
Deere’s discounted valuation is even more perplexing when you examine the company’s stellar growth across all its business segments.
The company’s largest segment, production and precision agriculture, has more than doubled its revenue since 2019 to $26.8 billion. The construction and forestry segment has jumped from $11.2 billion to $14.8 billion over the same period. Total company earnings before interest and taxes have nearly tripled in three years.
The trends behind this growth are even more exciting. Population growth, rising food demand, and the need for increased agricultural efficiency are powerful tailwinds supporting increased sales of Deere’s farming equipment. The global megatrend towards urbanization drives growth in Deere’s construction segment.
Essential Equipment for the Future
As a leading provider of agricultural and construction equipment, Deere sits at the forefront of some of society’s most important infrastructure needs.
Feeding a growing global population requires ever-more advanced farm machinery to increase yields. Deere’s tractors, combines, sprayers, and more will play a crucial role in sustainably producing enough food for the world.
Similarly, the global wave of urbanization and infrastructure development necessitates the type of heavy construction equipment Deere provides. From roads, houses, dams, and buildings to city water systems and ports, Deere’s machines will be found on every work site.
No matter what the future looks like, the world will need Deere’s innovative, productivity-enhancing equipment. That gives the company an enviable competitive position and long growth runway.
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Bottom Line
With its rock-solid balance sheet, steadily rising dividends, and future growth prospects, Deere offers investors a total package that is hard to match. The company is firing on all cylinders operationally, while its stock remains overlooked and underappreciated by the market.
Savvy investors should take advantage of this disconnect today. Deere’s quality and value make it a diamond in the rough – an industrial juggernaut trading at a bargain price.
For investors willing to venture beyond flashy tech stocks, Deere offers an opportunity to buy a world-class business for pennies on the dollar.
Frequently Ask Questions
What does Deere & Company manufacture?
Deere is an agricultural, construction, and forestry equipment manufacturer. They are best known for their John Deere brand of green and yellow tractors and other farm machinery.
What industries does Deere operate in?
Deere has two main business segments – production and precision agriculture, and construction and forestry equipment. So they operate primarily in the agricultural, construction, and forestry industries.
Why is Deere stock undervalued right now?
Despite strong financial performance, Deere trades at a low P/E multiple of 11x earnings. This is likely because as a cyclical stock, the market is pricing in an eventual downturn. However, Deere has proven resilient through all business cycles.
What is driving Deere’s growth?
Key tailwinds for Deere include population growth increasing food demand, the need for higher agricultural productivity, and increased construction activity from urbanization and infrastructure building. These trends are boosting sales across Deere’s business segments.
How has Deere been performing financially?
Deere has seen rapid growth in revenue and earnings over the past few years. Since 2019, total company revenue has increased significantly and earnings before interest and taxes have nearly tripled.
Is Deere’s dividend reliable?
Yes, Deere has paid steady or increasing dividends for over 25 consecutive years, even during recessions. This reflects the stability of Deere’s business.
What risks does Deere face?
Key risks include cyclical downturns in the agricultural and construction industries, fluctuations in commodity prices, and disruption from electric/autonomous equipment. However, Deere’s dominance in its industries help insulate it.