[ad_1]
(This is The Best Stocks in the Market , brought to you by Josh Brown and Sean Russo of Ritholtz Wealth Management.) Josh here — There will always be an agriculture cycle and companies in the agriculture space will always be, to some extent, beholden to it. In fact, companies in most sectors of the economy must contend with one cycle or another — commodities, interest rates, housing, capex, etc. But in the digital age, companies have found ways to annuitize their businesses and transcend this cyclicality. Converting traditional transaction-based business models into subscription or annually recurring revenue (ARR) business models has been one of the keys to the stock market’s relentless rise over the last ten years. When companies begin to generate earnings growth reliably, the multiple investors are willing to pay on those earnings re-rates higher. This is why the market’s multiple has trended higher over the last 20 years. On average, we are paying more for stocks on a price-to-earnings basis because the companies these stocks represent have gotten better at building predictable, reliable cash flow streams. In our Best Stocks in the Market column, we have written about Spotify and Netflix recently, both of which are great examples of what I’m referring to. One used to buy CDs or DVDs, paying for each product at the time of use, with the purveyors of movies and music awaiting our next purchase. Now we pay subscriptions and have access to as many songs or movies or TV shows as we want. Consumers love it and Wall Street does too. Annually recurring revenue models are all the rage (and the market capitalization) these days, even in unexpected places — like tractors and farming equipment. Today, Sean is going to tell you about Deere (DE) , a 188-year-old American stalwart that has set a goal for itself of converting 10% of its revenue to an ARR model by the year 2030. In 2024, the ag equipment giant did $51.7 billion in sales. Assuming it can get to its own stated target, the company would have approximately $5 billion or more of consistent top line revenue which The Street would gladly pay a premium for, just as it does with other companies in other industries. This is yet another example of how corporations are adapting to the new age of technology and capitalism. Best Stocks spotlight: Deere (DE) On the list since: 5/9/2025 Sean — Deere is the world’s leading manufacturer of agricultural and construction equipment. The brand is synonymous with reliability, quality, and a deeply rooted connection to American industrialism. Its iconic green and yellow color scheme is recognized by many people, without having used or experienced their products at all. The company officially started using the iconic green and yellow color combination around 1910. The green and yellow colors serve a larger purpose than branding — the green helps machinery blend into agricultural fields, reducing the visual impact on the landscape and the yellow provides contrast for when operators are looking for their machinery. Every detail is thought about through the lens of the operator. DE is incredibly focused on innovation and quality. In 1837, John Deere (a blacksmith in Illinois) developed the first commercially successful steel plow. Deere’s innovation dramatically increased farming efficiency and helped fuel agricultural expansion in the United States. In 2025, they’re still pushing the boundaries of agriculture. Today, 50% of operating earnings come from Production and Precision Agriculture — their largest and most profitable segment, focused on transforming farming into a tech-focused, data-driven operation. AI of agriculture DE has a fleet of IoT devices and they are all connected to the John Deere Operations Center — a cloud-based farm management platform that optimizes operations through data-driven insights. DE is tracking data, gathering insights, and deploying machinery in a smarter and efficient way in real time, saving farmers time and money — it’s the AI of agriculture. Via Quartr, tariffs are expected to have a pretax impact of over $500 million in fiscal 2025, with roughly $400 million of that falling in the second half, adding some headwinds to margins. However, the company is taking actions to mitigate these impacts through supply chain adjustments and targeted pricing adjustments for 2026 and beyond. As of their last earnings call, the U.S. represented 79% of its complete goods and 76% of its components. Tariffs will impact DE, but not in a meaningfully detrimental way. John Deere is an industrial company, but they’ve built a cloud-based, AI-capable software as a service platform within it. DEs Production and Precision segment is forecasting 15.5%-17% operating margins for 2025. The company is expecting 18% EPS growth in the next year. DE trades at a 25x trailing PE and a 23x forward PE. The company has a competent and experienced management team, an exciting growth story, a defensible moat, and a reasonable valuation. On a technical basis — DE is reflecting strength. Over the last 3 years, DE has touched its 200-week moving average once on a weekly closing basis: Looking at the 1-year chart earlier in the article, the rising 200-day moving average is serving as strong support. DE is an AI-wolf in sheep’s clothing. At first glance, the tariff narrative may seem like a headwind for DE. But look a little deeper, and it’s clear the company continues to innovate with the same spirit it had in the late 1800s. Risk management Josh — This one is simple to me. As you can see in the one-year chart above, DE buyers have respected the 200-day moving average since November. There was a false breakdown below it this April during the tariff announcement that was cleaned up relatively quickly. I would trail a position here with a rolling stop just below the 200-day. The stock has cooled off from its high in early May but the uptrend is intact and an RSI reading in the 50s is a better entry point than when the stock was making fresh highs and RSI was pushing 75. This is my kind of set-up. DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. INVESTING INVOLVES RISK. EXAMPLES OF ANALYSIS CONTAINED IN THIS ARTICLE ARE ONLY EXAMPLES. THE VIEWS AND OPINIONS EXPRESSED ARE THOSE OF THE CONTRIBUTORS AND DO NOT NECESSARILY REFLECT THE OFFICIAL POLICY OR POSITION OF RITHOLTZ WEALTH MANAGEMENT, LLC. JOSH BROWN IS THE CEO OF RITHOLTZ WEALTH MANAGEMENT AND MAY MAINTAIN A SECURITY POSITION IN THE SECURITIES DISCUSSED. ASSUMPTIONS MADE WITHIN THE ANALYSIS ARE NOT REFLECTIVE OF THE POSITION OF RITHOLTZ WEALTH MANAGEMENT, LLC” TO THE END OF OR OUR DISCLOSURE. Click here for the full disclaimer.
[ad_2]
Source link
