You're looking for value in a bull market, you need to take a look at agriculture equipment stocks. There are four. DE, CSE, NH, AG. The leader in the industry, John Deere, trades at about 12 times earnings. The up and comer in the industry, Case, trades at about 9 1/2 times earnings. The other two, which are credible companies with growing earnings, trade at under 8 times earnings.
Of course there are reasons to be scared. Corn and wheat prices are down bigtime and US farmers income should be down year over year. But they're not awash in debt as they were entering past downturns. The corn is in the ground, so a drought would raise corn prices and probably bounce these stocks about 20%. The danger is that the current crop comes out perfect and inventories are high going into next year - exports to Asia are going to be way off.
I'm not recommending anything here, although New Holland looks phenomenally cheap (400 million of free cash flow versus a market cap of about $3 billion). Case also looks exceptionally cheap, although it was up today. But this is the kind of industry which value investors should be spending their time researching.
Jim |
