Thanks to ever-expanding world population and technological
needs for mechanized agriculture, the agriculture and forestry
machinery industry is gaining immense strength. This trend is
clearly visible as one of the world's largest agricultural
Deere & Co (
, reported stronger-than-expected results and an upbeat outlook in
its recent fiscal fourth quarter release.
The company expects robust sales from construction and forestry
equipment that would offset the sluggish demand for agricultural
machinery. This has spread optimism in the broad equipment sector
heading toward the New Year suggesting that investors could take a
look at this industry and the in-focus company (read:
Reap Long Term Returns from These Agribusiness
The agriculture market is currently enduring the worst of sluggish
global demand and a supply glut, weak emerging market currencies,
and low crop prices due to a longer planting season. However, the
machinery industry is benefiting from increasing economic activity,
leading to growth in demand for industrial products.
Deere Earnings in Focus
Deere surpassed our estimates on both the top and bottom lines.
Earnings per share came in at a record $2.11, comfortably beating
the Zacks Consensus Estimate of $1.89 and above the year-ago
earnings of $1.75. Though revenues fell 3% year over year to $9.45
billion, it strongly beat the Zacks Consensus Estimate of $8.8
The manufacturer provided a bullish outlook for the full fiscal
year. Though the company expects equipment sales to drop 3% in
fiscal 2014 on weak demand for agricultural machineries,
construction and forestry equipment sales would grow much higher at
10% for the year in the wake of U.S. economic recovery and an
increase in housing starts (read:
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As such, net income is expected to be around $3.3 billion for
fiscal 2014, down from $3.54 billion in fiscal 2013 but well ahead
of the Street's expectation of $3.04 billion.
Driven by this earnings beat and the company's optimistic outlook,
the shares of DE jumped over 3% initially but closed a little lower
with a nearly 2% rise on Wednesday on elevated volumes. Given this,
the following two ETFs could be worth a closer look by investors
seeking to ride out the recent surge in the farm-machineries
These products have the largest allocation to the big agricultural
equipment maker and look to be in focus in the coming days with
room for upside. The companies engaged in the farm-machinery
business, including Deere, will benefit from an insatiable global
food demand (see:
all Materials ETFs here
ETFs to Consider
Market Vectors Agribusiness ETF (
This fund provides exposure to the global agribusiness industry by
tracking the Market Vectors Global Agribusiness Index. It is by far
the most popular and liquid choice in the space with AUM of over
$4.7 billion and average daily volume of nearly 322,000 shares. The
ETF is one of the low cost choices in this space, charging 55 bps
in annual fees.
In total, the fund holds 50 securities in its basket. Of these
firms, DE takes the third spot, making up roughly 6.79% of the
total assets. The product provides nice diversification across
business segments with agricultural chemicals accounting for 44%
share while farming/fishing (20%), and industrial engineering (19%)
rounding off the next two spots.
In terms of country allocation, U.S. (48.3%), Canada (10.4%) and
Switzerland (8.2%) occupy the top spots. The fund added nearly over
1% in the year-to-date time frame (read:
3 Commodity ETFs Surging Higher
iShares MSCI Global Agriculture Producers ETF (
This fund provides exposure to the firms of developed and emerging
nations that are primarily engaged in the agricultural business at
or near the initial phase of agricultural input and production. It
follows the MSCI ACWI Select Agriculture Producers Investable
Market Index and holds 125 securities in its basket.
Here again, Deere occupies the third position with 7.85%
allocation. From a sector look, agricultural chemicals take the
largest share at 52%, closely followed by farming/fishing (23%),
and industrial engineering (17%). American firms dominate the
fund's holding with 43.46% of total assets while Canada,
Switzerland and Japan receive modest allocations.
The ETF is less popular and illiquid with $41.6 million in its
asset base and around 12,000 shares in average daily volume. The
ETF charges 39 bps in fees per year from investors. VEGI delivered
almost flat returns in the year-to-date time frame.
Both ETFs seem to be under pressure on the sluggish agricultural
business environment. However, upbeat Deere's fourth quarter
results and the positive outlook have laid a strong foundation for
many firms in the sector.
Further, rising needs of better infrastructure, modernized methods
of agriculture and growing complexity of mining/manufacturing
methods would boost the demand for technologically advanced
equipment in this industry (read:
Time for This Top Ranked Industrial ETF?
Given this, investors could definitely take advantage of the
current slowdown in the agricultural space as well as solid
earnings results from equipment makers at the same time.
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DEERE & CO (DE): Free Stock Analysis Report
MKT VEC-AGRIBUS (MOO): ETF Research Reports
ISHARS-M GL AGR (VEGI): ETF Research Reports
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