Trade concerns, along with rising fuel costs and increasing crop production forecasts, put pressure on farm equipment inventories in 2019. As a result, the group underperformed the S&P 500 about 7% so far this year. Despite these challenges, the United States Department of Agriculture (USDA) continues to forecast 4.8% net farm income growth in 2019.
Sector stocks appear well positioned to maintain this momentum through 2020 as Washington and Beijing continue to strike a three-phase trade deal. As part of an initial deal, China is ready to buy $ 20 billion worth of agricultural products over 12 months in exchange for punitive tariff cuts and increase that amount in future rounds of talks. as reported by market insiders in October. In addition, the USDA has pledged $ 16 billion in aid to U.S. farmers affected by the trade war, which could further boost equipment purchases.
Basic demand is also expected to benefit the segment over the coming year. “We remain optimistic on agriculture until 2020, as we expect a strong [fertilizer and pest control] the nominations season next year “, Citigroup analyst PJ Juvekar wrote in a customer note, cited by Barron’s.
Those who anticipate improving conditions in the industry should add these top three inventories of farm machinery to their watch list. Below, we take a look at each company’s earnings and take a look at how a pullback from the trio in early November presents several exploitable deals.
Deere & Company (DE)
Deere & Company (DE) manufactures and distributes machinery equipment through three business divisions: agriculture and turf, construction and forestry, and financial services. Wall Street expects the farm equipment maker to post adjusted fourth quarter (Q4) earnings of $ 2.13 per share, down 7.4% from last year’s quarter . Revenue, on the other hand, is expected to increase 1.4% year-over-year (YOY) to $ 8.46 billion. Investors will pay close attention to management’s updated outlook on business uncertainty – an issue that has hurt the company’s results this year. Trading at $ 176.03 with a market cap of $ 55.43 billion and offering a dividend yield of 1.77%, the stock has returned nearly 20% year-to-date (YTD) at November 22, 2019. Interestingly, stocks jumped 14.16% from the past. three months, outperforming both the farm equipment industry average and the S&P 500 Index over the same period by 1.09% and 7.98%, respectively.
Deere shares traded mostly sideways between January and September, with the exception of massive sell-offs in May and August – two months that saw an escalation in trade tensions between the United States and China. The stock started to hit new highs in 2019 in early October, but retraced this month, providing a ‘buy down’ trading opportunity close to support from the July high and the simple moving average (SMA) 50 days. Consider placing an initial stop-loss order below the November 20 low of $ 169.74 and increasing it below each successive swing low to let profits run.
Lindsay Corporation (LNN)
Lindsay Corporation (LNN), based in Omaha, Nebraska, manufactures and distributes agricultural irrigation equipment and international water efficiency solutions. It also provides road infrastructure products and services. The $ 944.99 million company made a surprise profit of 54% for the fiscal fourth quarter, with its earnings improving 28.5% on an annual basis. Robust sales of zipper systems within the company’s infrastructure unit contributed to the positive result. However, total revenue was down 17.3% from the quarter of last year, affected by a 28% sales decline in the company’s irrigation segment caused by divestitures of activities. As of November 22, 2019, Lindsay stock was issuing a dividend of 1.42% and had fallen 7.69% for the year.
The company’s stock price has so far remained in a limited range throughout 2019. A sign that the bulls may be preparing to take control of the stock, the 50-day SMA has passed. the 200-day SMA in September to generate a “gold cross” – a closely watched technical signal that usually indicates the start of a new uptrend. November’s pullback to a crucial support area between $ 86 and $ 88 provides a suitable entry point for swing traders who wish to return to resistance above $ 97. Consider placing a stop loss order around $ 84 to limit downside risk.
CNH Industrial SA (CNHI)
With a market value of $ 14.61 billion, CNH Industrial NV (CNHI) manufactures, markets and finances agricultural equipment, construction equipment and commercial vehicles around the world. The machinery maker posted third quarter profit of 16 cents per share, although revenue of $ 6.36 billion for the period was down 4.9% from the September 2018 quarter due to poor performance in the company’s agricultural equipment and construction equipment segments, which saw YOY sales decline 7.2% and 8.5%, respectively. From a valuation perspective, the stock is trading at an attractive forward price / earnings (forward P / E) ratio of nearly 12, well below its five-year average of 16.67. As of November 22, 2019, CNH Industrial shares are returning 1.86% and have achieved a year-to-date gain of 19.56%.
Like the two stocks above, the company’s stock has fluctuated this year. More recently, the price has returned to the $ 10.75 level, where it finds a confluence of support from a three-month trendline, the July high and the 50-day SMA. Those who buy here should set a profit target between $ 12 and $ 12.50 – an area where the stock can encounter significant horizontal resistance. Protect yourself on the downside by reducing losses if the price does not hold above $ 10.50.