I would agree with you on the need for patience in this group.
I would also note, however, that the Ag equip sector shouldn't be treated as a monolith at this point. The longer commodity prices stay low, the more likely a shakeout will occur, especially among the second--and third--tier overseas players. That provides opportunity for the largest, most financially able, most experienced players. (That sounds like DE to me, on the farm side.)
Also, I'll note that this whole sector is a value play, not a growth play. (Very unfashionable!) I think it is reasonable to forecast moderate to low long term growth, but I'm buying primarily based on implied payback period or Low PE. You make a good point concerning overseas markets. The sector is exposed there, and a bet here is partially a bet for stability overseas.
Shouldn't you also differentiate between CAT and DE? How much do their markets really overlap? (That's a real question, not rhetorical--and I'll be doing some homework). I haven't looked at the CAT 10K recently, but had remembered them as very heavily dependent on construction and mining. DE is the reverse, with its dependence on Ag commodity prices. I think CAT, CSE etc present a whole different set of issues from DE, NH, AG, etc.
So for me, back to your point, (1)it's looking for some divergence from the CRB, long term, by selected firms from the purchase date, and (2) looking at a bottom, stabilizing CRB (or, medium term, firming prices).
One other point: If you're trying to build a portfolio, it's difficult to ignore the equipment sector altogether.
Best,
JS |
