Did Buffett Make a Mistake by Buying Deere & Co (DE)?

Page 1 of 2

Last year’s drought in the U.S. compelled many people to take short positions in the agriculture-related stocks. However, the market was taken by surprise when Warren Buffett announced a stake in Deere & Co (NYSE:DE), the farm-machinery manufacturer. Who was right: The market or Buffett?

Agriculture Outlook

The U.S. drought was expected to have an adverse impact on farm-machinery stocks in two ways:

1)      Smaller crops meant less income at farmers’ disposal.

2)      More importantly, less agricultural activity meant less wear and tear on farmers’ existing machines.

However, the bulls believed that the negative impact on farmers’ purchasing activity would not be as strong as originally anticipated, thanks to the effects of crop insurance, expiring tax provisions, and financing incentives from the State.

Warren BuffettThe recent news on the global fundamentals tells us that the bulls were right. Overall, the North American 100HP+ tractor sales were up 16% in 2012 to an all-time record (13% compound annual growth rate, or CAGR, since 2005). Also, the 13,000 units of combines sold represent a 10% CAGR since 2005.

However, after such a fabulous 2012 for this industry, the naysayers have resumed chanting a bearish outlook for 2013. They believe it is difficult to see the peak stretching further given the ongoing drought, lower insurance guarantees, and potentially lower crop receipts. However, they do not understand that the extended and enhanced tax incentives may support U.S. farmers’ buying activity. Also, Brazil is beginning to truly benefit farm-machinery stocks. A record expected soybean crop and a weak currency, the Brazilian real, are supporting the farmers’ investment.

Moreover, the aversion of the U.S. fiscal cliff is another bullish catalyst for this industry. 50% bonus depreciation was extended for another year, and Section 179 benefits were extended and enhanced; this may support equipment purchase activity for the year, including a possible year-end pull-forward of demand. (To have an understanding of what this means, please go this link.)

The Best Stock in the Industry

The three farm-equipment stocks under my consideration are:

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!