The Tortoise, The Kite and The Ninja of the Industry Stocks

Shaunak is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The Tortoise

I'm simply unimpressed with Deere's (NYSE: DE) results this quarter, and I'm bored with the company in general. DE is more like a slow and steady tortoise, and I don't think investors like tortoises too much.  What I mean to say is that although DE is still the world's largest agriculture equipment producer, it does not give an investor reason enough to put his/her money into the company.

What we need to understand from the recent results is that even though DE achieved record profits in the quarter, most of it came from selling expensive high end equipment in good numbers. DE missed investor expectations once again in this quarter as it reported a net income of $1.75 per share, compared to expected earnings of $1.88. Despite their efforts with FarmSight, a software-hardware integration to boost farm production, it remains to be seen if it gives them a sharp edge in the industry.

What I feel is, even though DE is a strong stock in the sense that I don’t expect it to be hit really bad in the turbulent future, the scope to benefit from investing in DE is limited in the long term and negligible in the short term. For the investors already holding DE, I think you should hold on to it. The reason why I say that is because DE has been doing some spending and investing, which is reducing their free cash flow. I hope for every stakeholder's sake that these investments start paying off soon.

The Kite

I like companies that move forward, and Cummins (NYSE: CMI) has been doing just that. They've been investing heavily in India for the past year, and they will continue to do so until at least 2015, pumping around $500 million into the growing economy. Their investment plan, which included a plant capable of producing 2.8L and 3.8L diesel engines, is nearing completion and should start production within the next six months.

CMI has one of the best trends in growth of profits in the past decade, and its success can be mainly attributed to its visionary outlook and aggressive investment in the future. CMI has been well ahead of its time and has been investing in cutting edge green technology since as far back as 2005 with the first diesel-electric hybrid truck. Not only that, they have led the way by putting hybrid buses on the streets as well.

Cummins is also set to benefit from the change in Natural Gas Usage policies in China, resulting in the rise in sales for Natural Gas Vehicles. CMI is perfectly poised to reap the benefits in China, as they have established themselves well, generating revenues up to $3 billion in 2010. The fact that they have had a strong footing in China for over 20 years now will only add to their value.

Cummins has excellent future vision and solid strategy to back it up, much like the preying Kite. They deserve every bit of your investing attention.

The Ninja

Statistically speaking, The Mosaic Company (NYSE: MOS) has a lot going for them that makes it a very good buy. In fact investors are already hedging their positions in anticipation of a stock move, as an unusual amount of call contracts between buyers and callers means that the stock is selling for less compared to other stocks in the industry.

MOS, the largest fertilizer producer in the country, might reduce potash output as market demand for the crop nutrients dwindle. Along with that, one should note that the company's Indian and Chinese contracts are running out, and good raw material is not expected for a few months. Although the earnings per share have seen a downward slide for MOS, this trend will soon reverse. Its notable that MOS has a very, very low debt-to-equity ratio of 0.08 and a quick ratio of 2.6, which allows them to manage their needs to cover for quick cash.

The point is that although MOS and the Agriculture Industry itself is hitting some road blocks, the company has a very sturdy financial structure and a growing operating margin that will remain largely unaffected. This basically implies that the company is managed well, and investing in it might just spring a surprise boom in your portfolio returns, especially in a few months time once the market improves.

Wrapping it Up

That was my take on the a few stocks linked to the Agriculture sector. What we really need to ask ourselves now is, what do we expect from our investments and when do we expect it? Answer that and you'll probably be heading in the right direction.

Good Luck! 


Shaunak88 has no positions in the stocks mentioned above. The Motley Fool owns shares of Cummins. Motley Fool newsletter services recommend Cummins. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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