Shares of agricultural machinery kingpin Deere (NYSE:DE) are flirting with correction territory once again, continuing the excessive volatility in what's been nothing short of a turbulent second half.
Despite recent swoons in the stock, Deere remains up over 100% from its pre-pandemic peak and multi-year consolidation price of around $177 and change.
As Deere stock finds itself in the headlights of yet another correction, investors may wish to steer clear as a potential "double top" technical pattern looks to be in the works. If it comes to fruition, Deere stock could risk plunging into bear market territory.
In any case, Deere is a high-quality, tech-savvy company that ought to be scooped up on any such excessive decline.
At around 2.6 times sales and 20.6 times trailing earnings, the stock still isn't all that expensive, especially given that Deere is likely to play a major role as farming moves further into the technological age.
As such, I am bullish on Deere now, and more so should the stock plunge as low as 20% off its high. (See DE stock charts on TipRanks)
More than Heavy-Duty Agricultural Equipment Manufacturer
Despite Deere's incredible 2020 run, the stock isn't nearly as frothy as you'd think, given the incredible (and improving) fundamentals.
The company has a wide moat that warrants a premium price tag. It is way too tough to get in the business of farming equipment, after all. Still, the cyclical nature of farming equipment warrants a bit of a discount. Get in on a cyclical stock at the wrong time of a cycle, and you could be looking at steep losses.
Deere's latest quarter (fiscal Q3) saw Equipment Operations sales soar 32% year-over-year. As expected, the demand for big-ticket durable goods was remarkably high, given we were in the early innings of recovery from the coronavirus recession.
Although sales momentum could wane considerably once we move into the mid-to-late stages of the current economic cycle, I don't think Deere stock is destined for another multi-year period of doing nothing, or a steep 70-75% sell-off like the one suffered back in 2008. Why?
Deere may be evolving into more of a technology company, and less of a discretionary one. At least, forward-thinking money manager Cathie Wood seems to think Deere is a compelling tech innovator.
Wood thinks very highly of Deere, a company that many investors would dismiss as boring and cyclical. At first glance, it's perplexing as to why Deere would be in an innovation-focused ETF. But looking under the hood, it's clear that Wood may be right on the money.
Deere is leveraging technology in a way that could save farmers tons of money in the long run. Whether we're talking about seed placement guiding systems, customizable spraying, or the holy grail of autonomous tractors, it's clear that Deere wants to push agriculture into the new age.
Wall Street's Take
According to TipRanks’ consensus analyst rating, DE stock comes in as a Moderate Buy. Out of five analyst ratings, there are three Buy recommendations, one Hold recommendation, and one Sell recommendation.
The average DE price target is $407.20. Analyst price targets range from a low of $346 per share, to a high of $442 per share.
Disclosure: Joey Frenette has no position in any stocks mentioned at the time of publication.
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