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Deere & Company Message Board

  • turborock34 turborock34 Feb 21, 2014 5:09 PM Flag

    Value Trap

    When I read articles and hear the analysts touting a stock (in this case DE) is a good buy based on valuation, it always grabs my attention, and then I overcome my excitement and realize there is a reason.

    I don't doubt DE is a great company, with great products, but its in a limiting marketplace and very capital-intensive, so what is the real near-to-mid-term upside here? Granted there may be some modest opportunity, but as with any stock there is downside, and I don't feel secure about the proposition in anything but the very long-term.

    Its basically too late to buy US equities, so we're all just better off waiting until the next super-cycle to make new purchases, and I think the best that can be said about DE is that should interest rates rise, which ultimately needs to happen if new buying opportunities are to be created, DE may fare a bit better (i.e. fall a bit less) than other equities, based on ... relative valuation.

    I think the reason Duestche Bank is making recommendations in the sector is because almost everywhere else valuations are too high, so they're trying to find an area that's not so over-valued to make recommendations. It feels like they're forcing it (to me).

    Patience is the best approach. If the market keeps going up, well, you've already missed out on where the market made sense, and you'll just have to wait for the market to correct through price or through time. On the other hand, if the market corrects sooner on price, then you'll be able to start buying the names you really want again, that complement your portfolio, which may or may not be DE at that time.

    To me, for DE to be a buy now, you have to be ready to hold for 10 years to know you'll be ahead of the game, and while I'm not against such invest-able opportunities in general, I believe that sometime well before then this market is going to present some much better opportunities, which you will want to be ready for with allocatable capital.

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    • All the hate on DE has only made it affordable. The stock has all the makings for a solid long-term hold -- name brand, dividend champ, low pay out ratio, necessary product, cheap entry point, etc. By long term, I put some shares in an IRA account with retirement still 25-30 years away. I could see myself holding the stock into retirement reinvesting the dividends along the way. That is, every quarter the share count will increase ever so slightly, leading to a larger dividend for the next quarter.

      It's a "Buffett" type stock in the sense that it's a product there will always likely be a demand for. Tractors for agriculture and equipment for construction will still be necessary decades from now and forever.

      I bought at around $80 and probably should've bought more. But we'll see what happens won't we.

    • Who listens to analysts these days? Doing your own research allows you to make better informed decisions.

    • If you think it is a value trap, short the stock and stay short. Pay the dividend year after year to the longs. DE has a $8B buy back going and would love to buy your short shares here. Within the next 10 years the stock will tank and you will make a ton of cash right? Go for it, but it is not what I would recommend.

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