In my previous article, I examined the freight market using J. B. Hunt’s commentary. I will use John Deere’s (DE) commentary in this article to explore what 2025 will bring for the agriculture and construction industries.

Deere’s commentary and outlook are worth their weight in gold - bitcoin bros, no offense implied - due to Deere’s diversified portfolio.

Not only does Deere have a diversified product portfolio, but it is also geographically well diversified with a footprint in every continent.

Before jumping into the industry outlook, let’s look at how Deere has been performing operationally. No fancy tables nor forensic accounting with this one as all disclosures and filings are clean as a whistle. However, there are slowdown concerns and it shows up in the numbers.

Where it gets interesting, the stock is still trading near its all-time highs (ignoring today’s mini-carnage). Despite guiding down for FY2025, the stock actually went up after earnings. And despite the poor earnings performance for FY2024, the stock has flatlined for the whole year. So, what was the narrative holding up the stock?

1. Recency bias. People still remember what the market did after Trump’s election victory in 2016.

2. Hopes of benign inflation heading into 2025.

3. Expectations of aggressive interest rate cuts by the Fed in 2025.

4. Expectations of growth pick up in the second half of 2025.

5. Deere’s operational excellence. Mainly its ability to maintain a healthy operating margin and aggressive inventory management.

Well, Fed Chair Powell torpedoed that narrative today. Not only did he up the PCE guidance for 2025 to 2.5%, but he also hinted at a smaller number of rate cuts. Analysts’ discount rates went for a toss, the growth projections and margin expansion hopes became iffy, and suddenly everything looked overvalued and a mini-carnage ensued. It didn’t help that Powell decided to pull a Greenspanesce gibberish-filled press conference. Deere ended the day down 3.97%.

Now the question is: What is Deere worth? The distortions that Fed policies have caused in the markets have caused the price of assets to move massively away from intrinsic value. For experienced market participants, it is not surprising or an anomaly. Reflexivity is part and parcel of markets leading to distortions between value and price. Hence for Deere, it is best to do a pricing exercise rather than a valuation exercise at this time.

Even with all the stock buybacks since 2001, Deere guided for the same EPS as FY2021. Deere ended calendar 2021 around 340. Would that be the first port of call? Or given the tighter monetary conditions and persistent deceleration of growth imply at a price of around 180, the pre-pandemic highs? There are no absolutes in this exercise, it is an ever-evolving situation as new facts and narratives present themselves. However, the overarching theme is to maintain a cautious stance.

Industry Outlook

Deere was cut and dry with its industry outlook (in units) and so shall I be. As you shall see, the outlook is shockingly abysmal.

Ag and Turf

• US and Canada Large Ag - Down ~30%

• US and Canada Small Ag and Turf - Down ~10%

• Europe Ag - Down 5%-10%

• South America Ag (tractors and combines) - Flat

• Asia Ag - Down Slightly

Construction and Forestry

• US and Canada Construction Equipment - Down ~10%

• US and Canada Compact Construction Equipment - Down ~5%

• Global Forestry - Flat to down 5%

• Global Road Building - Flat

Random Musings

A lot has transpired over the past few months and I wanted to take this opportunity to share a few of my thoughts.

JBHT’s Insight

I wrote about JBHT recently but forgot to include an interesting tidbit they shared. Consider the following quote. Pretty self-explanatory. However, speaks volumes about the economy.

SMCI’s Fund Raise

In my short blogging career, my work on SMCI in May caught the public’s attention and some of you are following me primarily due to that article. It is a gift that keeps giving. I chuckled when CNBC flashed the headline that SMCI had tapped Evercore to raise capital by issuing debt and equity. There was a very good reason for me to chuckle. Here is what I wrote in my article from May:

NVDA

Now, I stay away from posting stock charts with entry, stop loss, and target as I consider that bordering - if not absolutely - being advising. On November 28, I made an exception and posted a weekly chart of NVDA with a few simple lines without being too explicit.

For the uninitiated, that is a negative divergence. I warned on X that investors should take a cautious stance. Such a pattern on a weekly chart has historically led to large drawdowns. It has been playing out as expected and I continue to remain cautious.

Restaurant Stocks Hit

While SMCI brought the spotlight to this blog, I had a few more prescient and timely articles. I warned about WING and CAVA and why they were expected to underperform the market for 12 to 18 months.

• WING - I discovered that Wingstop was possibly capitalizing regular expenses and inflating earnings. Hence, giving a false picture of its true earnings. Also, the doorbell Ad didn’t go so well with dog owners, and WING got roasted online for the Ad. Since I wrote about WING on September 21, 2024, WING is down from 427 to 281.

• CAVA - Another high-flying restaurant stock that was being mispriced by investors. The majority of CAVA’s new restaurants were conversion and rebranding of existing Zoes Kitchen restaurants. All of the conversions have happened and any new restaurants would require higher CAPEX. Hence, I postulated that CAVA deserves a lower multiple. Since I wrote about CAVA on November 4, 2024, CAVA is down from 134 to 117 and the movie has just started.

Policy Changes

I noticed on X that people started gambling with short-term options based on my articles heading into earnings despite me consistently requesting people not to do so. People offered me steak dinners after having made bank with WING and CAVA. While it felt good, I was horrified and wanted to dissuade people from entering into such trades. Hence, I have made it a policy not to speak about companies close to their earnings nor publish any articles right before their earnings.

Until next time. Have fun!!!