Looking at Foolish colleague Brian Orelli's piece Thursday on Monsanto's
The first is, of course, the global growth in agriculture, especially in the developing nations. As Brian notes, "Even in tough times, people have to eat." With more than two-thirds of its most recent quarterly net sales tied to agricultural equipment, Deere should be an obvious beneficiary of growth in global food production.
Indeed, in the farming chain, growth in seed use ultimately leads to growth in equipment purchases, and at Monsanto, seed sales were 50% ahead of the year-ago figure through December. I'm betting that those impressive figures will ultimately lead to strong sales growth for Deere's agricultural equipment.
That unit, in addition to the green tractors we all know and love, produces combines, harvesters, and a variety of other seeding and soil preparation equipment. Already, the segment's sales increased by 43% in the most recent quarter. And while it's clearly expected that earnings will dip in the next couple of quarters at Deere, Monsanto's early readings of future demand could make for a surprise or two down the road for Deere.
But there's another trend that could eventually benefit Deere: President-elect Obama's proposed infrastructure effort has received considerable attention. I've written about how I believe cement companies like Cemex
While it doesn't compare with the size of the company's agriculture group, Deere's construction and forestry equipment division accounts for just under 20% of overall net sales. As such, should the Obama program be enacted, the company would be in a position to join the likes of Caterpillar
It's also important to note that -- despite a 6% pop on Thursday -- Deere's share price still closed at less than half its 52-week high. That metric, along with the company's macro possibilities and a 2.6% forward dividend, leads me to urge Fools to watch closely for a possible leap.
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