Stock in Deere (NYSE: DE) has averaged annual growth of 14 percent over 30 years, and it seems to have plenty of room for further growth. Up more than 20 percent over the past year, Deere has been benefiting from strength in the agricultural industry in recent years.
With spring planting pointing toward a solid season as farmers try to rebound from a drought-stricken 2012, Deere hopes to sell farmers the equipment they need to maximize their crop yields.
It has faced some headwinds from the slowdown in China’s growth, but other developments are promising. Global harvests of soybeans are expected by some to rise to an all-time high, pushing world crop inventories to new records, while corn inventories are seen rising to decade highs, too.
Deere is facing growing competition from Japanese rival Kubota, which can benefit from the strong U.S. dollar that devalues Deere’s international revenue.
But Deere remains compelling in many ways. Its net profit margin has been trending up in recent years, as has its return on invested capital. It recently paid a 2.2 percent dividend yield, and has been upping its payout by about 15 percent, on average, annually over the past five years. Deere recently reported better-than-expected second-quarter earnings, but management tempered near-term growth expectations a bit.
Give Deere some consideration.
Ask the Fool
Q: Is there a limit to how many shares of a company can be bought? J.L., Lake Charles, La.
A: Yes, because companies don’t have unlimited shares. They issue a certain number when they go public via an “initial public offering” (IPO), and they may issue more later, via secondary offerings.
You could buy all the shares on the market, but by doing so, your sudden demand for the shares would drive up the price. (That’s why major investors don’t like to publicize their trading, and why they try to buy gradually, in increments.) Once you own 5 percent of a voting class of shares, you’ll need to file a report alerting the Securities and Exchange Commission.
It can be costly to buy up all of a company. Xerox, for example, has about 1.3 billion shares outstanding, and you’d need more than $10 billion to buy them all.
Remember, too, that a company may have only a portion of its value in shares trading publicly. If a firm’s founder, for example, holds 60 percent or 90 percent of the company, then she still controls it.
Q: I want to invest in the stock market, but I don’t have a huge pile of money. Is there some rule of thumb regarding how much I should invest when it costs me $7.99 per trade? – T.C., Canton, Ohio
A: It’s good to aim to spend no more than 2 percent of your investment on commission costs. So if you’re spending $8 on a trade, you should be investing at least $400. Also, if you plan to sell quickly, you might want to factor in your $8 selling commission, upping your minimum to $800.
Learn about inexpensive brokerages at broker.fool.com.
My dumbest investment
I owned 18,000 shares of Conseco, a stable, conservative Indiana-based insurance company. In 1998, it bought Green Tree Financial, a commercial lender specializing in mobile homes. I had not set a stop-limit order to sell my shares when they fell to a certain level. I was not paying attention.
Conseco ended up filing for bankruptcy protection. I got about a thousand dollars back, via litigation. It was a dead loss otherwise. There were many object lessons: No corporation is so solid that an ambitious CEO cannot drag it into bankruptcy. If it’s your money, better keep a sharp eye on it. Eighteen thousand shares – each one still hurts. – C.G.S., Warrenville, Ill.
The Fool responds: Conseco’s 2002 bankruptcy filing was the third-largest in corporate America when it happened, trailing just WorldCom and Enron. Lots of big mergers have turned out to be regrettable (remember Time Warner and AOL?), and CEO egos do contribute to plenty of corporate blunders.
The Conseco of today is profitable again, but that’s small consolation to many previous shareholders who got wiped out, as typically happens in bankruptcies.