Deere Is an Actual Buy-the-Dip Opportunity

We’re currently in a polarized market, and it seems as though it doesn’t know exactly what it would like to do. Many investors have relied on buying into various dips of late as a consequence. Deere (NYSE:DE) stock is one of the stocks to buy.

Several John Deere vehicles are parked outside of a building.
Source: Jim Lambert / Shutterstock.com

DE stock has traded down from its impressive highs a few months ago. Analysts were very optimistic about the stock before it fell by more than 10%. After various bullish big banking price targets were released, the company released its earnings, which beat estimates, but that didn’t seem to spur on the market.

I think that it’s the perfect time to buy the dip on high-quality stocks now that the 10-year yield appears to have found calm. Let me outline why.

High-Quality Business Model Backs DE Stock

Deere & Co. has established itself as the 68th largest company on the S&P 500 by offering a range of high-quality products at justified prices. Deere has been the largest producer of agricultural manufacturing equipment since 1837. 

DE stock has performed strongly relative to the S&P 500 and has beaten the index by approximately 4.5 times since listing on the New York Stock Exchange in 1978. 

In more recent times, Deere has made a constant effort to innovate. The company’s precision farming development is a key driver behind prospective earnings, with the company expecting a 25%-30% increase in segment revenue for 2021.

Furthermore, developments in non-agricultural segments are expanding rapidly. An example is Deere’s acquisition of Wirtgen in 2017 for $5.2 billion. Wirtgen, at the time, was the largest road-construction equipment maker. Other acquisitions such as PLA, and Unimil added prospects of cost-cutting and geographic synergies as well.

Loads of Value Among Stocks to Buy

The stock surged by more than 120% since the market’s pandemic rebound. Most investors seem to have acted because of the dip. This soon translated into a commodity play as inflation loomed. As inflation expectations started having a negative outlook for the market, DE stock suffered as many believed that the input costs could hamper their profit margins.

The 10-year yield has found calm in recent weeks, which allows for high-quality stocks to trade nearer to intrinsic value. Deere experienced an EBITDA growth of 37.84% year-over-year and net income growth of 63.39%. Furthermore, the company’s operating cash flow increased by 49.45% year over year, while EPS has grown 64.55% year over year.

Old-School Route

In placing a valuation on the stock, I went the old-school route by looking at dividend-paying capabilities. I noted a constant payout ratio, which allows for the Gordon Growth Model to be used.

A value worth $545.45 is what the model gives us, which means a possible upside of 30%, which would most probably beat the market.

The final valuation matter I’d like to discuss is the PEG ratio. A PEG ratio measures the stock P/E ratio relative to the sustainable growth rate. DE stock currently trades at a PEG of 0.37, which implies relative value as it’s below the 1.00 used as a benchmark to identify undervalued/overvalued assets.

Final Word on DE Stock

Deere & Co. performed exceptionally well toward the back-end of 2020 and for a part of 2021. The stock has retraced due to systemic reasons, and I believe it’s one of those stocks to buy and a perfect time to re-invest in the dip.

Dividends weren’t discussed in this article, but I fully think that Deere’s dividend-paying capacity conveys the strengths of its robust business model.

I also used dividends to place an intrinsic value on the stock, which found that DE stock is undervalued; the PEG ratio agrees with the narrative.

I believe that it’s a good time to invest. Investors should be aware that any asset has its risks. 

On the date of publication, Steve Booyens did not hold any long or short positions in Deere. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Steve Booyens co-founded Pearl Gray Equity and Research in 2020 and has been responsible for equity research and PR ever since. Before founding the firm, Steve spent time working in various finance roles in London and South Africa, and his articles are published on various reputable web pages such as Seeking Alpha, Benzinga, Gurufocus, and Yahoo Finance. Steve’s content for InvestorPlace includes stock recommendations, with occasional articles on crowdfunding, cryptocurrency, and ESG.


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