DEERE INVESTORS WAITING TO SEE WHICH OF THE TRADING RANGE BOUNDARIES WILL FALL

Deere & Co.

stock has been good for buying dips and selling rips – the recommended strategy for dealing with a "trading range" stock. The company is stuck in a situation where the condition of the global economy and a rising US Dollar are weighing heavily on the stock. At the same time, technical factors occasionally bring in the buyers to stop the downside momentum. What factors will win out – the bearish fundamentals or the occasionally bullish technicals? Let's take a look at the numbers to see… The bullish take on Deere… • Some cheap valuation metrics: o An enterprise value of $63.12 billion versus the stock's market capitalization of $29.87 billion o Price-to-sales of 0.85 • Decent management effectiveness ratios: o Return on assets of 4.58% o Return on equity of 31.00% • Net profit margins of 8.24% that spin off $1.54 billion in positive levered free cash flow annually • A good short-term financial position as evidenced by the current ratio of 2.29 • A Treasury-beating dividend yield of 2.7% The bearish take on Deere… • Some very rich valuation metrics: o A PE of just over 16 with flat to slightly negative revenue and earnings estimates for next year o A price-to-book ratio of 3.61 • Huge amounts of debt to service: o Cash of only $3.44 billion versus debt of over $36.7 billion o A debt-to-equity ratio of 444.88% The technical take on DE shares… Technicians note that DE shares are really in the middle of "no man's land". There appears to be a trading band with $95.05 and $79.50 as the upper and lower boundaries. The stock does have some shorter-term support at $84.29. Above $95.05, the next resistance for DE will be $99.24. Technicians typically recommend to buy near support and sell near resistance in such a "trading range" situation. Overall… Deere does not yet offer enough of a valuation play for bargain seekers to come in and buy the stock. Perhaps if the stock drops to $84.29, the bulls will step in and begin to buy. If the stock then drops to $79.50, more heavy waves of buying should take place. The worse the markets trade in general, the more money will flow into the US Dollar-denominated fixed income and out of risk assets like the euro. That phenomenon should mean more trouble for a stock like DE.