Is John Deere Stock a Buy? 4 Reasons to Buy DE Stock
After rallying over 320% from its pandemic lows, Deere & Company (NYSE: DE) stock is sitting near an 18-month low. Is it time to buy John Deere stock?
During the pandemic, the world’s largest farm tractor company saw heavy demand for its products. Low-interest rates spurred project spending. As a result, demand soared to its highest level in years for John Deere products.
For example, the company’s largest segment’s (Production & Precision Ag) operating profit jumped 69% in 2021. But, will rising interest rates and recession fears slow John Deere’s momentum?
Investor fears of a recession are rising, and John Deere stock is failing to provide a place to hide, down almost 30% over the past three months. Yet, there is reason to believe Deere stock can bounce back. Here are four reasons to buy John Deere stock while it’s down.
Why John Deere Stock is Worth Considering
No. 4 John Deere Stock Price Hits 18-Month Low
Since 2000, John Deere stock has only fallen over 15% from the beginning of the year once. Can you guess what year?
It was 2008. If you are thinking, well, 2008 was a recession, why would I buy Deere shares now?
For one thing, recessions can happen for different reasons. In 2008, the housing bubble crashed, sparking a global financial crisis. If a downturn happens this year, it will likely be due to separate factors.
For instance, commodity prices are surging. Supply chain issues started the issue as worker shortages and shutdowns through the system off its rails. Then, the war in Ukraine is pushing prices higher as gas and oil supply becomes a concern.
To slow the surge, the Federal Reserve is raising interest rates. The Fed’s move is working so far as commodity prices have come down from their highs. But, will the hikes slow demand too much?
You may be saying, what does this have to do with John Deere stock? If a recession happens, economic activity slows. At least, falling GDP is a part of the equation. But there may be reasons to believe John Deere stock will do better this time.
No. 3 Industry Tailwinds
Despite supply chain challenges, John Deere stock is having a solid year. Earnings in the second quarter rose 17%. Meanwhile, EPS reached $6.81 compared to $5.68 last year.
The growth is thanks to rising demand for Deere products and industry tailwinds. For example, a few factors are increasing demand for farm and construction projects.
- Higher Crop Prices: Rising crop prices lead to more profitable, cash-rich growers. Farmers have the money to upgrade equipment as a result. Lastly, higher crop prices are incentive to increase production.
- Supply Concerns: U.N. Secretary-General warns of “An unprecedented global hunger crisis.” The war in Ukraine and other supply chain disruptions threaten the global food supply. As a result, he calls for boosting production outside of Ukraine and Russia.
- Aging Fleet: Two straight years of supply chain disruptions is taking a toll on an already aging fleet of farm equipment. As a result, the fleet age is higher than growers typically allow.
Furthermore, the U.S. and Canada, Deere’s largest market, heavily invest in infrastructure. The Infrastructure Investment and Jobs Act funds $1.2 for economic projects in the U.S.
At the same time, resource-rich Canada is in the middle of its 12-year Investing in Canada Plan. The goal is to boost GDP and build a resilient future. Projects like these are the reason John Deere is boosting its outlook going forward.
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DE Stock Forecast: Is John Deere Stock a Buy?
John Deere is proving demand for its products remains high despite industry challenges. The company’s latest earnings show it has the orders to meet its growth targets.
Higher material and freight costs are cutting margins, but the company is overcoming them with solid demand. Products with new tech can help consumers save money, creating value for everyone involved.
Furthermore, the company expects the tailwinds to pick up in the next few quarters. In particular, John Deere says Q4 can potentially be its highest margin period.
Even with recession fears growing, John Deere stock is a solid investment in the long run. With a consumer favorite brand, strong positioning, and increasing payout, Deere shares are attractive at these levels.
At the same time, if a recession hits, even though a company is growing, its stock can fall. Keep a lookout in the near term for another shakeout. But, in the long run, I expect John Deere stock to continue rewarding investors.
John Deere’s order books are almost full through the rest of the year. Not to mention demand is picking up for the company’s newest products.
