I wrote bullishly about Deere (DE) back in December, and since then the stock has done…not much, gaining 4.8% to the S&P 500′s 4.1% rise. So I’ve tried to stay on top of the stock, both the bullish calls and the bearish ones–and today, I have another bear to add to the list. That would be JPMorgan’s Ann Duignan, who reiterated her Underweight rating on Deere today, as well as CNH Industrial (CNHI) and Agco (AGCO). She explains why:
NA retail sales of high HP tractors and combines have already fallen 48% and 58% from peak (2013), respectively; but demand only dipped below trend in 2015 after ~7 years above trend. More used equipment is being taken to auction, a positive in the long-run as dealer but a potential negative for residual values in the near term. In Europe, the European Commission expects total agricultural income to decline considerably in real terms over the next decade (-14%), mainly due to fairly low agricultural prices and increasing costs. Demand in SA is likely to remain volatile, though at least planted area continues to grow; a positive for equipment in the long term. Overall, we remain bearish on agriculture equipment names given current valuations and growing fundamental risks; we maintain our UW ratings on Deere,CNH Industrial and AGCO.
Still, the technical set up on Deere, a key component of my argument, continues to look good–real good. Strategas Research Partners’ Chris Verrone explains:
We also want to reiterate our bullish view on the agricultural commodities and the ag-related stocks (e.g., CF Industries Holdings (CF), Mosaic (MOS), Potash Corp. of Saskatchewan (POT), FMC (FMC), AGCO, Deere). Following sharp multi-year declines, trends continue to improve.
And here’s the chart of Deere to prove it:
Strategas Research Partners
So, will the technicals catch up with the fundamentals, or will the fundamentals catch up to the technicals?
Shares of Deere have advanced 0.6% to $107.72 at 3:28 p.m. today, while CNH Industrial has gained 1.6% to $9.46, Agco has climbed 2% to $63.46, CF Industries Holdings has jumped 4.4% to $36.81, Mosaic has soared 6.6% to $33.62, Potash Corp. of Saskatchewan has rallied 6% to $20.03, and FMC has risen 2.1% to $62.01.