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The Basics of Deere & Company

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Worldwide Invest Better Day 9/25/2012

This month, the Fool is promoting Worldwide Invest Better Day on September 25. The idea behind WWIB Day is to "educate, inspire, and motivate" investors of all experience levels to, well, invest better. With that in mind, let's take a look at the basics of Deere & Company (NYSE: DE  ) , one of the world's biggest tractor manufacturers.

The company's basics
Deere is the largest manufacturer of agricultural machinery in the world. While Caterpillar (NYSE: CAT  ) is a larger company, it's a common misconception that the two are direct competitors. Caterpillar sold its agricultural equipment businesses to AGCO (NYSE: AGCO  ) in 2002, leaving Deere at the top of the food chain, though the two still compete in other product areas.

Deere commands a 50% market share in the United States and generates more sales than most of its competitors combined. While the company gets 60% of its sales from the U.S. and Canada, its latest annual report details Deere's plans to build factories in China, Brazil, and India, areas the company feels will be critical to its growth.

While Morningstar gives Deere a healthy "A" credit rating, it's important to note that equipment manufacturing is a very capital-intensive business, and Deere's debt-to-equity ratio is a rather high 4.2. That makes it hard to judge its seemingly low price-to-earnings ratio, as that measure doesn't give a true picture of the company's finances.

The broader industry
The United Nations estimates that farmers will need to double food production by 2050 to keep up with the demands of a rising population. Tractors can go a long way toward solving that problem since they greatly increase a farm's efficiency.

However, while the United States is a huge market, and its farmers need to replace or upgrade their equipment periodically, the real opportunity is in the developing world, where tractor use is still relatively rare. While Deere's international sales are growing, the company is still predominantly focused on the United States, leaving the door open for its smaller and more nimble rival AGCO, which does much more of its business internationally. Additionally, Deere only reports revenues in two geographic locations, "The U.S. and Canada" and "Outside the U.S. and Canda" -- not very helpful if you're trying to track a booming foreign market.

That about wraps up the basics of Deere, but the Fool has a new special report with details on the strengths and weaknesses of Caterpillar, one of Deere's main rivals. Click here to read it now and stay tuned to the Fool as we give you the run-down on other stocks leading up to the first annual Worldwide Invest Better Day on September 25!

Fool contributor Jacob Roche holds no position in any of the stocks mentioned. Check out his Motley Fool CAPS profile or follow his articles using Twitter or RSS. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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Related Tickers

10/28/2016 11:43 AM
DE $87.22 Up +0.22 +0.25%
John Deere CAPS Rating: ***
AGCO $50.60 Up +0.58 +1.16%
AGCO CAPS Rating: ****
CAT $83.63 Up +0.62 +0.75%
Caterpillar CAPS Rating: ***