An earlier post about Agco's strong quarter can be found here. I had originally considered adding the company in early October, but wanted to do more research first since it was a relatively new name to me. Suffice it to say, while still more expensive than my other agricultural equipment play CNH Global (CNH), it's chart is in far better condition right now. Also, Agco is a pure agricultural play while CNH has some construction business in it. After the stellar quarter Agco's 2007 estimates were raised from $1.76 to $2.28. 2008 estimates raised from $2.60 to $3.13. There is some risk in analysts getting ahead of themselves and raising the bar too far; unlike fertilizer I think there is more risk in equipment sales but this has been among the strongest charts in one of my favorite sectors, so I am branching out a bit.
I am hoping for a further pullback to $54 to buy a larger position but I started today with 150 shares for a 0.8% position (just under $58). With the 50 day moving average at $53 and rising and a nice 'gap' in the chart created when Agco reported such stellar earnings a move down to $54 or so would be quite poetic so that is where I have a larger buy order waiting.
The company now trades at 25x this year's estimates, and 18.5x next year's.
AGCO Corporation manufactures and distributes agricultural equipment and related replacement parts worldwide. The company's products include tractors, combines, self-propelled sprayers, hay tools, forage equipment, and implements, as well as a line of diesel engines. It offers tractors used on small and medium farms, and in specialty agricultural industries, including dairies, landscaping, livestock, orchards, and vineyards; and self-propelled, three and four-wheeled vehicles, and related equipment for use in the application of liquid and dry fertilizers and crop protection chemicals. The company's hay tools and forage equipment include balers, self-propelled windrowers, forage harvesters, disc mowers, spreaders, and mower conditioners used for the harvesting and packaging of vegetative feeds used in the beef cattle, dairy, and horse industries. It also produces diesel engines, gears, and generating sets for tractors, as well as off-road engines in the 50 to 450 horsepower range. In addition, it offers a range of implements, including disk harrows, heavy tillage, and field cultivators; planters; and other equipment for its product lines. Further, the company provides precision farming technologies that enable farmers to gather information, such as yield data by utilizing satellite global positioning systems.
Long Agco in fund; no personal position
4 comments:
Hi Mark,
Considering the short term trend of the market, would it not be a better LREP to pick up AG after it fills the gap?
Absolutely. That is where my limit order is sitting in fact for the 2nd layer - but I try to layer in and out of positions. Perhaps in a benign market we would of never had a chance to buy at this level and the stock would be in the low to mid 60s so I consider it a nice first entry point. If market turns on a dime at least I have something in the game and can buy higher for the 2nd swig. If market continues to be weak then my limit order goes off. I never go all in at once or al out on longer term positions because calling the market near term is hard, and I am not very good at it. As I wrote in the entry my hope is it falls to that level and judging by how weak the market appears I think it has a good chance, but its not a guarantee. Let's say it doesnt and then goes back to $60+. This way I at least have some position established in the $50s. If I plan to make this a 3%+ position this early stake is only about 25% of my future position. Last, the stock could break support for all we know - so maybe I can layer in another buy in the low $50s. Never know! So thats why I layer in and out.
Thanks for the great explanation. You have a great Blog here and I really appreciate reading it.
thanks for reading! :)
and to follow up my above comments in shorter manner, I try to catch the middle of a move, I never get the exact bottom or top, but if you can get the meat of the move in the middle consistently over time you will do well.
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