Bumper Crop For Green Giant

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What's going on?

Just as Americans prepare to eat shed loads of farm-grown goodness, farm equipment manufacturer Deere kicked off its own Thanksgiving celebrations by telling Wall Street that its making far more money than expected and investors gobbled up the stock!

What does this mean?

Deeres sales and profits soundly beat Wall Streets expectations, partly due to a boost from South American farmers. But its the improving US market that is particularly noteworthy: Deeres sales here jumped more than 20% versus a year ago, and the maker of the trademark green tractors said it expects sales to grow nicely next year as well. This comes after years of weakness in Deeres biggest market, driven by low crop prices weighing on farm incomes. The pickup in sales is being attributed to farmers replenishing equipment that is just getting too old.

Why should I care?

For markets: Deeres stock jumped almost 5% to a new all-time high.

Deere was really struggling a few years ago, but its stock has almost doubled in the past two years. While thats partly down to the dynamics of the US farming industry, Deere is also benefiting from improving global growth. For example, as economic growth picks up in South America, farmers are more willing to upgrade their farm equipment. Deere recently increased its exposure to growth further, spending $5 billion on buying Wirtgen, a German road-paving equipment maker (construction like that is often tied to overall growth).


The bigger picture: What goes down often comes up especially in established industries.

People gotta eat and, at least until bio-engineered Thanksgivings becomes commonplace, farmers are going to grow food to meet that demand. Consequently, while Deeres sales may fluctuate year by year, its most likely going to keep chugging along selling equipment (as long as its dominant position doesnt get usurped). Theres always a risk that these huge, entrenched companies fall from grace (just ask General Electric), but in general they tend to be relatively safe stocks over the longer term.

Originally posted as part of the Finimize daily email.

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