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AGCO Corporation (AGCO): Massive Insider Buys By A Director

Agco Corp (NYSE:AGCO)Although large insider buys are a fairly common occurrence at publicly traded companies, it is rare for a game-changing accumulation to occur within the space of a few weeks. However, this is exactly what has happened at AGCO Corporation (NYSE:AGCO), an Atlanta-based manufacturer and distributor of agricultural equipment. Since late March, a company director named Mallika Srinivasan has purchased millions of shares of the company’s stock and recently reported a total stake of more than 5 percent.

Indeed, she has purchased approximately $75 million in shares since April 1 alone. Thus far, she has shown no indication of slowing down her purchase program.

Although she is not intimately involved with the day-to-day operations of the firm, Srinivasan’s status as an insider cannot be taken lightly. As such, investors who have any interest in the agricultural machinery space may wish to take a closer look at AGCO Corporation (NYSE:AGCO) and determine if this director has an ulterior motive for her purchases. Ultimately, there is a potential for investors who follow her lead to profit handsomely.

AGCO’s Financials at a Glance

AGCO manufactures and sells a wide range of agricultural equipment, including tractors, mechanical plows, grain spreaders, grain storage bins, and various engines and replacement parts. Its principal brands include Massey Ferguson, GSI and Challenger. Financially, the company has a market capitalization of about $5 billion and earned income of $522.1 million on approximately $10 billion in 2012 revenues. This equates to a profit margin of 5.2 percent and a return on equity of 15.8 percent; however, AGCO Corporation (NYSE:AGCO) recently suffered a quarterly revenue drop of more than 64 percent and carries a debt load that exceeds its cash balance by about 50 percent.

Running in a Competitive Space

AGCO must deal with several larger competitors. For instance, Moline, Illinois-based Deere & Company (NYSE:DE) has a market capitalization that exceeds AGCO’s by a factor of seven. Deere & Company (NYSE:DE) also pays a superior dividend of approximately 2.4 percent. Deere earned $3.2 billion on $36.8 billion gross revenues in 2012. This produced a profit margin of 8.6 percent and a return on equity of 44.7 percent. Both of these figures are superior to AGCO Corporation (NYSE:AGCO)’s corresponding values; however, Deere isn’t experiencing the same insider buying.

Some of these competitors are based overseas. Japanese industrial conglomerate Kubota Corp (ADR) (NYSE:KUB) maintains a heavy presence in the agricultural space and boasts a market capitalization of more than $18 billion. Financially, the firm has a profit margin of 6.2 percent and a return on equity of just over 10 percent. As such, it is not positioned quite as strongly as Deere & Company (NYSE:DE); however, its more diversified portfolio makes it less vulnerable than AGCO to economic shocks within the agricultural industry.

Key Threshold Cleared

News that Srinivasan has cleared the key 5 percent reporting threshold was greeted with interest by some market-watchers. It is important to note that Srinivasan does not appear to be using options or leverage to make her purchases. As CEO and part owner of a privately held, India-based tractor manufacturer known as Tafe Motors and Tractors, she is believed to be among India’s richest individuals. Although the precise extent of her finances is difficult to judge, it is safe to assume that she could double her current stake in AGCO Corporation (NYSE:AGCO) without putting a serious strain on her personal cash flow.

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