NEW YORK ( F.A.S.T. Graphs) -- Ever since blacksmith John Deere invented the first commercially successful steel plow in 1837, Deere (DE) has helped farmers feed America.
Today, true to its legacy, Deere continues to help farmers feed people, but now does it throughout the world. In addition to the U.S. and Canada, Deere operates in France, Germany, Mexico, South Africa, Argentina, Spain, China, Netherlands, Russia, the United Kingdom, India, South Africa, Australia, Brazil, Israel, Finland and New Zealand.
Moreover, the company has expanded beyond agriculture into residential, golf and other sports, commercial, forestry, engines, and even the military. In short, Deere is a worldwide company, which in its own words is "dedicated to those who are linked to the land -- farmers and ranchers, landowners, builders, and loggers."
I bring this all up to illustrate that this is a great company with a 175-year legacy of excellence, a worldwide presence and a valuable long-term investment, with a history of enduring strength and value. As you will soon see, there is a certain amount of cyclicality, in the longer run it's a story of a good, stable business generating growth at long-term above-average rates.
The following 21-year (20 years of history plus the current year)
reveals a great deal about John Deere the business, and about John Deere the solid investment. Still, a few words of clarification are in order.
First , the orange line on the graph represents a plotting of earnings per share and a P/E ratio of 24.8, equal to the company's earnings growth rate since 1993. The blue line represents the P/E ratio of 16.2 that the market has typically applied to Deere's shares over that period of time. The light blue shaded area expresses dividends paid out of earnings (green shaded area). The pink line simply plots the company's dividend each year and simultaneously indicates the company's payout ratio, which is everything below the pink line. Finally, the black line represents the company's monthly closing stock prices.
A quick analysis of this graph reveals that Deere is undervalued when the stock price is below the blue line, overvalued when it's above the blue line and historically fairly valued when the price is touching the blue line.
Consequently, on that basis Deere stock is currently significantly undervalued. Since you make your money on the buy side, Deere looks like a very attractive buy for the long-term investor.