In an SEC filing last week, the multi-billion dollar investment manager Southeastern Asset Management now owns some 12.2% of CNH Global NV (NYSE:CNH) . Mason Hawkins’ Southeastern added
CNH Global NV (NYSE:CNH) to its portfolio with a 1.483 million share purchase of
CNH Global NV (NYSE:CNH) during the fourth quarter of 2012. After the SEC filing, Southeastern now owns some some 3.715 million shares, a 150% increase (check out all of Southeastern’s picks).
CNH is a global, full-line company in both the agricultural and construction equipment industries, competing with the likes of some of the major equipment makers, including Deere & Company (NYSE:DE) and Caterpillar Inc. (NYSE:CAT) .
At the end of last month, CNH posted EPS of $1.33, compared to $1.11 for the same period last year. The company now expects 2013 revenues to be up nearly 5%. Fiat Industrial holds an 87% stake in CNH Global NV (NYSE:CNH) and has plans to merge itself fully with CNH. Nonetheless, CNH itself should be aided by global economic growth and rising crop prices.
Deere & Company (NYSE:DE) is also heavily tied to the agriculture market, with around 74% of revenues generated by the segment. Its agriculture segment manufactures and distributes a full line of farm equipment and related service parts including tractors, sugarcane harvesters, sprayers, irrigation equipment, and more. Deere & Company (NYSE:DE) expects continued weakness in Europe, with agriculture and turf sales for Europe to be down 5%, compared with the previous expectation of flat to down 5%, owing to weakness in Europe’s economy.
Deere & Company (NYSE:DE) is also investing to increase its market share in Brazil. The value of agricultural production in Brazil is expected to rise 9% annually in 2013. Deere raised its agriculture and turf sales growth forecast for South America to 10% to 15% from the previous expectation of 10%. This should be driven by strong market conditions and growth in government subsidies in Brazil.
Famed short-seller Jim Chanos and his Kynikos fund have the most conviction when it comes to hedge funds in Deere & Company (NYSE:DE). Chanos has 5.8% of its public equity portfolio invested in the agriculture equipment company (check out Chanos’ top stocks
A couple big positives for both Deere and CNH Global NV (NYSE:CNH) include the fact that the U.S.Department of Agriculture predicts that U.S. farm income will be a record $128.2 billion in 2013, up 14% year-over-year. This will come on the back of farmers that are expected to harvest a record 14.4 billion bushels of corn, up 34% annually, and the second-largest soybean crop at 3.3 billion bushels.
Caterpillar Inc. (NYSE:CAT) recently trimmed its 2013 sales outlook to a range of $57 to $61 billion from the previous $60 to $68 billion. Now expecting to earn $7.00 per share in 2013, down from the earlier projection of earnings between $7.00 and $9.00 per share.
Another part of the weakness for Caterpillar Inc. (NYSE:CAT) is reduced mining demand and the European debt crisis that has had a negative impact on Caterpillar Inc. (NYSE:CAT)’s results. What’s more is that China’s economic growth appears to be slowing from its robust levels witnessed over the last decade.
However, the company expects other areas to balance out growth, with economic growth in both Africa and the Middle East expected to be over 3.5% in 2013. The most notable investor, coincidentally holding the largest position in Caterpillar Inc. (NYSE:CAT), is billionaire Bill Gates’ Foundation Trust, which has a $919 million position in the company that makes up 5.4% of its 13F portfolio (see Gates’ top picks
By the numbers
CNH is the cheapest of the stocks on a forward P/E basis and has the lowest PEG ratio.
| ||CNH ||CAT ||DE ||AGCO |
|Forward P/E ||8.2 ||11.2 ||10.4 ||9.5 |
|PEG ratio ||0.79 ||0.85 ||1.16 ||1.23 |
CNH is also managing inventory nicely, at a time when other major equipment makers are seeing a backlog. Caterpillar remains affected by slowing demand and inventory correction as a result of higher production than demand. The biggest challenge for Caterpillar and Deere will be the continued right-sizing of production volumes, where both Caterpillar and Deere have lower inventory turnover ratios than CNH.
| ||CNH ||CAT ||DE ||AGCO |
|Inventory turnover ||3.44 ||2.37 ||3.13 ||3.63 |
Don’t be fooled
While I think Caterpillar Inc. (NYSE:CAT) is a long-term buy
, I would wait for a better entry point. Meanwhile, CNH appears to be a solid investment opportunity based on valuation and a bustling agriculture market. What’s more is that Deere & Company (NYSE:DE) could also be an intriguing investment given its exposure, like that of CNH Global NV (NYSE:CNH), to the agriculture market. However, I prefer CNH given its greater international exposure, 62% of revenues outside of North American, compared to Deere’s 44%. CNH is also cheaper on a forward P/E basis.
The article Billion-Dollar Fund Doubles Down on a Rebounding Economy originally appeared on Fool.com and is written by Marshall Hargrave.
Marshall Hargrave has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Marshall is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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