3 ETFs to Buy if You Think Deere Will Beat Earnings

There is optimism in the construction industry, thanks to a Donald Trump presidency and what it might mean for infrastructure spending. But because of campaign rhetoric regarding immigration and its potential negative impact on farming, Deere (DE) has been in investors' crosshairs and sitting out much of the rally enjoyed by its peers.

There's one big question investors are asking themselves: will the unknowns and perils continue?

Shares of Deere, which makes agricultural and construction equipment, have gained roughly 3% since Trump became president-elect. However, that has badly lagged the performance of Caterpillar (CAT) , which many see as a competitor to Deere. Caterpillar, has gained nearly 10%, on hopes the company will benefit from increased infrastructure spending.

Deere may also benefit from any increase in infrastructure spending, but it's the company's agricultural business which has investors worried. Farmers rely on a number of undocumented immigrants for their workers, something that RBC Capital Markets analyst Seth Weber noted may impact the industry negatively.

"Deportation of undocumented immigrants and a wall on Mexico's border could impact U.S. farmers and productivity," Weber wrote in a note to clients, following the election. "The USDA estimates that 500k+ undocumented immigrants are crop farm workers, and mass deportations could leave farmers short of workers and cause higher wages. Separately, a more protectionist trade policy could affect crop exports."

RBC doesn't specifically cover Deere shares.

Wells Fargo analyst Andrew Casey noted that he expects Deere to tell investors that Europe will remain flat in terms of growth, but areas like South America, Russia, India and CIS are seeing some improvement.
 
"Looking out into the end of November, DE is expected to provide guidance for F2017 - we anticipate management will describe flattening market demand trends with modest margin pressure as negative mix shift in US/Canada, and higher raw material cost headwinds, likely offset structural cost reduction actions," Casey wrote in a note to clients.
 
"In sum, Q3 16 demand appeared to be mixed, and F2016 outlook does not look likely to improve appreciably yr/yr other than potentially for Brazil," Casey added.

Analysts compiled by Yahoo! Finance expect Deere to earn 32 cents a share on $5.38 billion in revenue.

VanEck Vectors Agribusiness ETF

The VanEck Vectors Agribusiness ETF (MOO) has Deere make up 7.1% of its $832.8 million portfolio and charges investors a 0.55% expense ratio.

While RBC Capital's Weber noted that the $1 trillion federally funded infrastructure program could help equipment makers like Caterpillar, Terex, Manitowoc and others, the possibility of a trade war could hurt companies that have exposure to Mexico and China. Deere has exposure to both markets.

iShares MSCI Global Agriculture Producers ETF

Deere makes up 6.75% of the iShares MSCI Global Agriculture Producers ETF  (VEGI) which has $25.3 million in assets under management and has a 0.39% expense ratio.

First Trust Index Global Agriculture ETF

The First Trust Index Global Agriculture ETF (FTAG)  has Deere make up 4.82% of its $4.2 million portfolio and charges investors a 0.8% expense ratio.

Wells Fargo's Casey expects Deere's outlook for 2017 will continue to show its markets are under pressure and get through the overhand of used equipment. 
 
"Looking out into the end of November, DE is expected to provide guidance for F2017 - we anticipate management will describe flattening market demand trends with modest margin pressure as negative mix shift in U.S./Canada, and higher raw material cost headwinds, likely offset structural cost reduction actions," Casey penned in a note.

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