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Deere Investors Waiting To See Which Trading Range Boundaries Will Fall

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Deere Investors Waiting To See Which Trading Range Boundaries Will Fall

Deere & Company (NYSE: DE) 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 U.S. 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

  • Some cheap valuation metrics: An enterprise value of $63.12 billion versus the stock's market capitalization of $29.87 billion and a price-to-sales ratio of 0.85.
  • Decent management effectiveness ratios: Return on assets of 4.58 percent and return on equity of 31 percent.
  • Net profit margins of 8.24 percent 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 percent.

The Bearish Take

  • Some very rich valuation metrics: A PE of just over 16 with flat to slightly negative revenue and earnings estimates for next year and a price-to-book ratio of 3.61.
  • Huge amounts of debt to service: Cash of only $3.44 billion versus debt of over $36.7 billion and a debt-to-equity ratio of 444.88 percent.

The Technical Take

Technicians note that Deere 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 Deere will be $99.24. Technicians typically recommend to buy near support and sell near resistance in such a "trading range" situation.

Overall…

The worse the markets trade in general, the more money will flow into the U.S. dollar-denominated fixed income and out of risk assets like the euro. That phenomenon should mean more trouble for a stock like Deere.

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Stock chart

Posted-In: DeereLong Ideas Short Ideas Dividends Technicals Trading Ideas

 

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