At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.

But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.

And speaking of the best ...
If you know someone who owns stock in Deere & Co. (NYSE:DE), and they're feeling a little surly this week, cut 'em some slack. JPMorgan Chase just downgraded their stock, and as a result, the company sat out of yesterday's market rally. And that's not even the worst of it -- which actually comes in two parts:

  • First, JPMorgan was right to tell investors to sell Deere.
  • And second, this may be only the beginning of the bad news.

Ranked in the top 20% of investors tracked by CAPS, JPMorgan is one of the best machinery analysts on the planet. According to our records, this banker has placed affirmative buy/sell bets on a dozen stocks in the sector over the past three years, and has proven itself right 57% of the time. A few examples:


JP Says:

CAPS says:

JPMorgan's Picks Beating S&P By:

Terex (NYSE:TEX)



43 points

Caterpillar (NYSE:CAT)



31 points (2 picks)




19 points

In short, when JPMorgan tells you to sell Deere, I'd listen. This bank's record speaks for itself.

And now for the really bad news
JPMorgan's record aside, there are many reasons to dislike Deere. Personally, I'm happy to pan the stock for:

  • Its single-digit five-year growth prospects, which strain to support the stock's 11 P/E ratio;
  • The fact that most analysts think Deere's earnings will decline further this year, raising the forward P/E even higher; or
  • The fact that despite reporting "net income" on its income statement, Deere's cash flow statement shows that the company produced not one cent of free cash flow over the last 12 months. (However, in the past two quarters, Deere has really poured it on, with more than $1.5 billion total in free cash.)

Or heck, "all of the above." JPMorgan, however, went a step further yesterday and sought out yet another reason to think Deere's going down.

Noting that livestock managers around the globe are culling their herds, JPMorgan sees demand for feed grain on the wane. And as we learned back in Econ 101, the lower the demand for a good, the lower the price. JPMorgan anticipates grain growers to rake in markedly less money this year, with expected crop receipts overall declining 10% and corn cash-receipts in particular plunging 20%. JPMorgan further opines that "the livestock sector will likely remain under pressure into 2010, putting downward pressure on crop consumption and thus cash receipts."

Long story short, grain farmers have a whole lot less scratch to work with this year, and are unlikely to be spending big bucks on John Deere combines and tractors. And incidentally, the Associated Press (AP) came to the same conclusion in a report filed Wednesday: "Fewer farmers buying at annual ag equipment show."

Summing up
What's it all mean to you, the individual investor? First, that as bad as Deere's valuation looks today, it could look even worse tomorrow. And second, if JPMorgan -- and the AP -- are right about trends in the ag industry, we could see lower spending at a whole host of ag-related enterprises. This trend won't stop at Deere. It will roll on to tumble PotashCorp (NYSE:POT) and Mosaic (NYSE:MOS), Caterpillar and Monsanto (NYSE:MON).

Beware falling stock prices. There are more downgrades ahead.

PACCAR is a Motley Fool Stock Advisor pick.

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating about stuff he does understand under the handle TMFDitty, where he was recently ranked No. 463 out of more than 140,000 members. The Motley Fool has a disclosure policy.