Deere & Co. (DE)

With agricultural commodity prices roaring, Deere is one to look at it. There used to be many farm equipment stocks, but now there are few, so there's a scarcity of stocks in this industry. The best of breed like Deere are rallying as investors expect a coming boom. Deere's last quarters have been strong from rising commodity prices and management keeps raising guidance. DE is up 38% YTD and is selling at 23x earnings. It's trading like a Facebook and more expensive than that. That's fine, because there's a scarcity of farm equipment names. Deere has been buying back a lot of its shares.

Classic stock for this kind of environment. Leadership in the recovery includes industrials and basic materials. He also owns CAT.

Take profits. The stock is ahead of itself trading at a high PE. They will have record earnings this year, but the price is already reflecting that and more. The new Biden administration will mean lower trade tensions with China will make farmers happier and wealthier. Deere has gotten into the heavy equipment business to compete with Caterpillar. A Biden infrastructure bill would really help.

This will go higher. So will Mosaic (MOS).

A JPMorgan analyst last week reported lower crops supply and rising demand near term, a perfect storm, which will result in higher spending on North American agriculture. Throw in strong demand from China. The same report urged a sell on Deere--that's crazy.

This is a stock he likes a lot because management is so good. Every time there is trouble, this company finds a way to take market share away from their competitors. Keep in mind that this is about 75% agricultural, so they are going to rise and fall with the farmers of the world. Feels agriculture is a good place to invest in, because people are always going to have to eat.

(Market Call Minute.) The cycle is very long. The farmer is still on his knees and not buying farm equipment. This is one you can nibble at, but you might have to wait awhile before you see a catalyst.

The economy has just gone through a commodity -type cycle. The question is, when is the cycle going to bottom out. Because we have had such a long commodity cycle, it is a really tough question to answer. Prefers taking other types of cyclical risks.

75% of what they sell are farm tractors. This has perked up lately and outperformed the market in 2016. Soybeans traded at a maximum limit increase yesterday in the futures market, up 5.5%. That is good for farmers. The other issue that it is not just North American farmers, but farmers globally. One of the big markets for them is Brazil. Commodities that Brazil does well in are not bouncing back yet. The company should do well as long as soybean and corn perk up, and the US and Canadian farmers do better.

(Top Pick Sep 24/14, Down 9.89%) He liked the agricultural prices being depressed and you would get an uptick when they turned around. Then the Agriculture business got more depressed. He has to make some decisions about whether to keep it or not. It is much better run than CAT-N.