advertisement
Deere's run
Let me start with a stock that's already in Jubak's Picks: Deere (DE, news, msgs).The past six months haven't exactly been kind to shares of Deere. Since April 21, the stock has dropped 32%. As of Sept. 4, it was at $63.50 a share. The reason for the drop has been pretty straightforward: Falling profit margins due to the rising costs of raw materials have kept earnings growth lagging behind revenue growth. The recent fall in the prices of farm commodities has raised fears that the boom is over in the farm belt. In my column of Sept. 2, "Meet the market's next winners," I explained why the slowdown in the rate at which raw-materials prices are climbing will help Deere get on the right side of the cost curve again, and why the company is likely to surprise investors when it next announces earnings. And I firmly believe the boom in agricultural commodities is a long-term story that has the better part of a decade to run. Deere is one of the best stocks to own to profit from that continued farm boom.
The company has continued to invest in its core agricultural-equipment business, even as the global economy slows and Wall Street develops a bad case of anxiety about an early end to the farm boom. With a $90 million investment in its large high-horsepower-tractor plant in Waterloo, Iowa, scheduled for completion in 2010, and a $35 million investment in its harvesting-equipment factory in East Moline, Ill., scheduled for completion in 2009, Deere is certainly behaving as if it expects the boom to run. The company is also investing in its fast-growing international business with a new tractor factory in Brazil and an assembly plant and distribution center in Russia.
That makes good sense for a company with an eye to the future: Deere's net sales outside the U.S. and Canada have doubled since 2000.
But Deere is also building two new businesses. In June 2006, the company bought Roberts Irrigation, marking Deere's entry into the fast-growing business of managing water on the world's farms. Two 2008 acquisitions, of T-Systems International and Plastro Irrigation Systems, in Israel, have helped make John Deere Water Technologies a new No. 3 in the global agricultural-irrigation market. Another new business, John Deere Renewables, has now invested in more than a dozen wind-power projects, often in partnership with rural farm cooperatives, that produce about 600 megawatts of power.
More from MSN Money
Deere sets a pretty high hurdle, both in its ability to compound cash flow with profitable investments in its own business and in its discipline in sticking to its strategy in a rough economy. But I've found four other companies that measure up. In alphabetical order, they are:
- Applied Materials (AMAT, news, msgs). Why would anyone put a plug nickel into a company that announced bad news like this? In its fiscal third quarter, which ended in July, Applied Materials saw net sales fall 28% from the third quarter of fiscal 2007. Earnings per share dropped 65%. New orders dropped 11%.
But I think this company is worth your money because Applied Materials is developing two new businesses that will build on its dominance of the market for equipment for making flat things out of silicon. Sales in Applied Materials' new business of handling silicon for companies making displays for computers and televisions grew 93% in the quarter from the third quarter in fiscal 2007. New orders climbed even faster: 597%. In its second new business -- equipment for companies making solar cells out of silicon -- sales grew by 500% and new orders by 508%. The problem in the short run is that those two businesses produce only 26% of the company's sales, and the company's older businesses are struggling right now. But every quarter will shift that balance.
Video on MSN Money
Sit on that cash for nowThe takeover of Freddie Mac and Fannie Mae may mean a recovery for the mortgage market but not necessarily the stock market as a whole, Jim Jubak says.
- Coach (COH, news, msgs). I don't know whether I'm more impressed by Coach's ability to dodge the bullet that has taken down most of the luxury retail sector -- Coach's earnings per share climbed 46% last quarter compared with a year earlier -- or by the company's determination to stick to its strategy of bringing affordable luxury leather goods to China using exactly the same model that the company used to grab 12% of the luxury leather market in Japan. It began in 2000 with just 2% of the Japanese market, but by 2008 the company had a bigger market share than Prada or Gucci.
China is next. Coach plans to open 50 more stores in China in the next five years to go with the 30 it already operates there. The target, company CEO Lew Frankfort says, is China's emerging middle class. Right now, the handbag market in China is about $1.2 billion in sales. And, as in Japan in 2000, Coach has just a tiny sliver of that, about 3%.
- ING (ING, news, msgs). Funny how easy it is to expand into new and lucrative markets when all your competitors are selling off assets as fast as they can just to stay afloat. In the second quarter of 2008, this Dutch company wrote down less than $70 million in losses and bad debt from the very same asset classes -- you know, subprime mortgages, credit default swaps and the like -- that have cost its competitors billions or tens of billions in losses in recent quarters.
Guess that's why ING was able to buy retirement-plan and benefit administrator CitiStreet from Citigroup (C, news, msgs) and State Street (STT, news, msgs) in July. The acquisition makes ING the third-largest player in the U.S. defined-contribution sector -- you know, 401(k)s and the like.
It's also why ING is advancing into developing economies while competitors are retrenching. In January, ING bought Banco Santander's (STD, news, msgs) Latin American pension business. This summer, ING launched new direct-banking and life insurance businesses in Ukraine.
< previous | 1 | 2 | 3 | next >
Rate this Article
High