John Deere (DE): Post-Earnings Analysis

Long-Term Investment Strategy

John Deere is one of my top long-term portfolio investments, along with Microsoft, Costco, Tesla, Nvidia, and many others. I also buy index ETFs to invest in the Nasdaq and S&P to have broader exposure to the indexes and soften the volatility a bit that high-growth stocks come with. I use the Invesco QQQ Trust Series (QQQ) & the SPDR S&P 500 ETF Trust (SPY) for those investments.

I invest in John Deere because I like having a strong, industrial name in my long-term portfolio. John Deere is also a leader in AI. The company demonstrates strong, EPS growth and consistent earnings beats along with a long-term, bullish trend. John Deere is leading the way using AI to improve output as it relates to agriculture. The only way to make more money in agriculture is to get more land to produce more, or use the same amount of land and get that land to give you more yield. DE works to do just that, using their farming technology.

On these long-term investments, I dollar-cost average using weekly/monthly timeframes and specifically focus on pullbacks with squeezes. I continually work on building up long-term share positions, with the goal that as these positions become larger, the dividends plus the ability to sell calls against the shares will provide income generation opportunities in addition to the wealth generation created by the original investments.

An Earnings Hit

As apart of this strategy, it’s much more enjoyable when a portfolio company reports earnings and the stock rallies, sending my portfolio higher. But, as we know, that isn’t always the case, and it especially hasn’t been the case this quarter.

This quarter, we have frequently seen what I would consider companies I am most bullish on (as determined by the long-term trend and fundamental take) fall post-earnings, despite good and great earnings results. Every earnings season is different, and this quarter, the flavor of the season has been one of high criticism towards arguably the strongest companies.

John Deere for example crushed EPS estimates. They were estimated to earn $8.14 per share, and they reported earnings of $10.20 per share. Yet, as I write this, the stock is down -5.07%, which is -$21.00.

Now, some may look at that and say John Deere got crushed. But, it’s important to keep in mind the expected move that was priced in in the options market. A stock is really only getting crushed if it moves 1.5x-2x (or worse) the expected market maker move that was set in place before earnings. For John Deere, that move was $16.48.

Check out the initial post-earnings gap DE experienced in the Hot Zone screenshot below:

John Deere in the Hot Zone over the last 5 earnings reports. This chart demonstrates the pre-earnings and post-earnings moves, along with the statistics summarized at the top. Click on the image to learn more.

To summarize:

  • DE crushed EPS estimates
  • Gapped down less than the expected move
  • Continued falling in what became a move slightly bigger than expected
  • I’m still bullish

What does this mean?

Well, it’s pretty typical of what has been occuring with strong companies that have seen strong rallies this year. I think it’s a combination of the exuberance wearing off, investors wanting to lock in profits on big names, and a sign of impending anxiety about the continuation of this rally.

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The Long-Term View

As I mentioned above, I like to buy shares of stock in companies that have weekly and monthly squeezes. This is because these companies are consolidating, and setting up for big moves. Arguably, DE has already had some pretty big moves, but that doesn’t mean it’s dead.

In fact, oftentimes, a post-earnings reaction can be a buying opportunity. I have several stocks I have been eyeing for post-earnings buys, including Microsoft, Apple, and now John Deere. I haven’t seen my buy triggers yet (a sign that the low is in and price is shifting higher), especially with the downward trend in the Nasdaq, but they are on my radar.

These blips can be great opportunities to buy more shares, especially with this long-term view. Check out my monthly chart on John Deere below:

In this chart, you can see the gorgous trend, rising EPS numbers and dividends, the monthly squeeze, volume inflow, plus clean overhead price targets at key psychological values. These are all of the exact signs I like to see for a great, long-term pick!

Buying More John Deere

The next question that always comes is, ‘When are you going to buy more John Deere?’ As apart of my dollar-cost averaging, long-term strategy, I am not anywhere near as picky as I am with options trades about the perfect entries. This is because when you are holding for many years, the $20 difference on a $400 stock isn’t going to make that much of a difference, and also because it’s better to just get and be involved instead of obsessing over the ‘perfect’ time. Looking at key support zones, like the 50 SMA, 100 SMA or 200 SMA on the daily chart are pretty good spots. I also like the 21 EMA on the weekly chart. Dips post-earnings can also be a good opportunity.

In this instance, DE is below the 50 and 200 on the daily chart (not a great sign), but sitting on the 100 SMA and $400 key pscyholgical value (good but not great). On the weekly chart, it’s holding the 50 SMA and sitting above the 21 EMA and the 34 EMA (this is great). The indexes are also continuing to break down (not the best time to buy when they are still falling, but at least we are getting a discount).

It’s all about taking these factors into consideration, and using them as a checklist. If you stress over perfection, you will never take any action. That is why I use the Five Star approach. I look for five reasons to buy. If I can’t come up with at least three, then the setup is only rated a three star and it’s not good enough.

A Five Star Setup?

In this case I have:

  1. A solid monthly and weekly trend
  2. Monthly and weekly squeezes
  3. Strong fundamentals: rising EPS estimates + rising dividends
  4. A decent pullback that is holding support
  5. A macroeconomical reason the company is set to do well in the future

In trading, the best you can do is identify an edge, and stick with it. Of course, setups can break. But, DE would have to get below $290 before I’d consider this trend broken, so that is a long way to go! In the meantime, I’ll continue investing in John Deere, even though it fell post-earnings.

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