Deere's (NYSE: DE) stock has had a fantastic run over the last five years (up 151% versus a 48% rise in the S&P 500). Still, a few investment analysts downgraded the stock recently on fears that its agricultural machinery sales were slowing. I thought I'd look at the stock's buy and sell case in light of the downgrades.
The most robust bear case is that falling crop prices and rising interest rates are pressuring spending on agricultural machinery and will lead to a cyclical high in Deere's fortunes. This argument is based on the traditional cyclicality of Deere's earnings and its sensitivity to farmers' income from crops.
As the chart below shows, Deere's earnings tend to move in the direction of U.S. farmers' income from crops (used as a proxy for global income; the U.S. is Deere's most significant market).
Source Fool.com