John Deere Off as Predicted
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Jonathan Yates
John Deere Off as Predicted

Since it was published on August 1 on this site that is was likely to continue to fall, John Deere (NYSE: DE) has declined, as predicted.  As such, it is becoming even more attractive as a long term investment.  But it is likely to decline even more in price, particularly with its earnings being reported on August 14, before the opening bell.

The entire agriculture sector is down, especially the equipment makers.  Caterpillar (NYSE: CAT) is off, too.   Much of that is due to the decline in economic growth in China.  It is much the same story for John Deere, as shown by the chart below.

For 2013, John Deere is down by 5.14%.  Over the last week of market action, John Deere has fallen by 2.50%.  It performance for the past quarter has been particularly grim, off by 11.76%.

But there is much to like about John Deere as a long term investment.

As Carol Loomis, who wrote the book “Tap Dancing to Work” about Warren Buffett, recently noted in an interview, “The Oracle of Omaha” focuses on the return-on-equity.  Obviously that is not all, but that measure is important to Buffett.  Here, John Deere is very strong with a return-on-equity of 42.80%

John Deere has valuations that makes it attractive, too.

The price-to-sales ratio is 0.84.  That means that every dollar of sales by John Deere is selling at a 16% discount in the sales price.  With a price-to-earnings ratio of 9.96, John Deere is almost 50% below that of the market average for a member of the Standard & Poor’s 500 Index (NYSE: SPY).

But the dividend of John Deere is above that for a member of the Standard & Poor’s 500.  With a dividend yield of 2.52%, John Deere’s dividend is about 25% than the Standard & Poor’s average of about 2%.  In addition, John Deere has a history of increasing its dividend.

If John Deere reports disappointing earnings, the share price should fall even more.  With a short float of 4.20%, there are those betting that will take place.  If it does, that will be an excellent opportunity for investors to buy for the long term at a discount.

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