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Wednesday July 21, 2010
Deere & Co. (DE): A breakout bet?
by Leo Fasciocco, editor Ticker Tape Digest T  echnically, Deere & Co. (DE) is in a 17-week flat base; the stock has now pushed toward the top of the base as in position to breakout at any time. With earnings growth to accelerate the next two quarters, we have has high expectations for a breakout by Deere. The company makes farm and turf equipment, and related service parts. The construction and forestry sells machines and parts used in construction, earthmoving, material handling and timber harvesting. The credit segment provides financing, DE's long-term chart shows the stock climbing from 28 in 2005 to a peak of 94 during that bull market phase. The stock then made the round trip during the following bear market. It fell back to 24. However, DE is now on the month North having more than doubled the past 14 months. The stock is now in an up trend. DE's daily chart shows the stock rallying from 40 to 62. The stock then set up a flat base bracketed between 54 and 62. The base is well defined with upside resistance at 62.52. 
The stock's momentum indicator is solidly bullish. And the stock's accumulation - distribution line is in an overall up trend. Interestingly, the AD line has broken out to the upside. That could well be a lead indicator that the price of the stock will breakout soon. This fiscal year ending Oct. 30, analysts forecast DE's net will climb 47% to $4.16 a share from $2.84 a year ago. The stock sells with a price-earnings ratio of 15, which we see as reasonable. Going out to fiscal 2011, the Street looks for a 17% gain in net to $4.86 a share from the anticipated $4.16 in fiscal 2010. We see the key to the stock being the upcoming acceleration in quarterly earnings growth. Net for the fiscal third quarter (July 30) should climb 23% and then in the fourth quarter 269%. Accelerating earnings are often a key driver that can send a stock higher. Net for the upcoming fiscal third quarter should come in at $1.21 a share from 99 cents a year ago. The highest estimate on the Street is at $1.61 a share. So, there are some who see potential for a big quarter. Analysts expect revenues this fiscal year to rise 8%. The company will benefit from a pick up in the economy and an upturn in crop prices. The largest fund holder is Vanguard Wellington Fund, 5-star rated, with a 2.2% stake. It has held its position steady. A key buyer recently was 5-star rated Blackrock Equity Dividend Fund which purchased 391,600 shares. We suggest a stop buy near 62.60 to catch DE as a breakout. We are then targeting the stock for a move to 72 after a breakout. A protective stop can be placed near 59 after a breakout. Overall, we rate DE a good intermediate-term play that could very well in coming months. Learn more about this financial newsletter at Leo Fasciocco's Ticker Tape Digest. |
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