Chartists should be able to find a number of constructive clues in this chart, above. First, let's examine what went on in August. Prices were slashed $15 to $20 in a hurry with a huge gap in the middle of the plunge. Volume surged to around 15 million shares in sort of a capitulation trade. Prices went still lower in September with another gap, but on much lighter volume. DE was getting sold out. Shares of DE staged a sharp rebound in October, including a testing of the declining 50-day simple moving average. Last, the August-October decline generated a bullish divergence versus the momentum study, meaning the rate of decline slowed in September vs. August.
This chart, above, shows us how the 40-week moving average has performed on a stock that has largely traded sideways. This chart also shows us DE is basing in the general area of the lows that held in 2012. Bottom line: Prices for DE may continue to trade sideways for a while, making a bigger base pattern, but a rally over the October highs would turn the trend up and generate a buy signal vs. the 50-day moving average. A sell stop below $73 should work.
Separately, TheStreet Ratings team rates DEERE & CO as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:
We rate DEERE & CO (DE) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. Among the primary strengths of the company is its respectable return on equity which we feel is likely to continue. At the same time, however, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and generally higher debt management risk.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- DE, with its decline in revenue, slightly underperformed the industry average of 18.3%. Since the same quarter one year prior, revenues fell by 20.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. When compared to other companies in the Machinery industry and the overall market, DEERE & CO's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
- Net operating cash flow has decreased to $1,346.50 million or 11.06% when compared to the same quarter last year. Despite a decrease in cash flow DEERE & CO is still fairing well by exceeding its industry average cash flow growth rate of -27.98%.
- The debt-to-equity ratio is very high at 4.81 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company.
- The gross profit margin for DEERE & CO is currently lower than what is desirable, coming in at 31.06%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 6.73% trails that of the industry average.
- You can view the full analysis from the report here: DE