Wednesday, December 28, 2022
If inflation has you feeling anxious, you’re not alone.
Though it’s cooled a bit recently, inflation was still 7.1% in November, the last full month of data. Historically speaking, that number is still outrageously high.
According to a recent survey from data-analytics firm Clever, seventy-eight percent of respondents believe rising prices have become a crisis…
And sixty-two percent fear prices of everyday goods will climb higher in 2023.
Food inflation has been particularly jarring. Federal data shows that prices for food prepared at home are up more than twelve percent this year.
But help’s on the horizon. For example, a storied supplier is using what’s called precision agriculture to help farmers lower prices by doing more with less.
At first blush, it may sound rudimentary. But its focus on advanced systems is highly profitable.
And not only can this company provide some relief with respect to inflation…
But for investors like us, it could also deliver big profits.
As a boomer of a certain age, I vividly recall inflation’s impact in the 1970s.
Things got so bad one winter, my dad deadpanned, “If food gets any more expensive, we’re going to have to give up eating.”
Flash forward fifty years, and you can see why inflation has so many people on edge. Anyone born after the mid-1980s is facing a new economic challenge.
When Russia invaded Ukraine in February, it cut off exports of wheat and fertilizer, putting a huge dent in the global market. That sent prices of these commodities soaring. And with no peaceful end to the war in sight, there’s also no easy fix to food inflation.
The thing is, food prices were already rising before Russia’s invasion. Droughts and floods in several of the world’s breadbaskets, combined with post-pandemic supply-chain issues, made food scarcer and prices higher.
In fact, in 2020, the share of disposable income devoted to food in the U.S. surged to a twenty-year high…
No wonder the Clever survey showed sixty-two percent of respondents are worried about inflation.
This situation is exactly why I’m so excited about the precision-farming supplier I hinted at earlier…
The company I’m referring to is Deere & Co. (NYSE: DE), the storied agricultural-machinery company better known as “John Deere.”
You might know this company for its tractors. But as mentioned, it’s focused on much more, including precision agriculture. This is a strategy farmers use to increase yields while using less of everything — fuel, water, seed, fertilizer, pesticides, etc.
Deere, for example, enables farmers to identify exact patches of food that need herbicides, water, or fertilizer. This significantly cuts down on unnecessary work and materials (for example, herbicide use can be trimmed by seventy-seven percent). With Russia’s fertilizer production off the market (Russia accounted for twenty-five percent of the global total), doing more with less is more critical than ever.
But adopting this precision-agriculture strategy isn’t a simple process. It involves a sophisticated mix of tractors, sprayers, drones, and other machines. Each one is equipped with 5G wireless chips, GPS sensors, cameras, and other robotics and electronics.
Following billions of investment dollars into research & development, Deere is now rolling out self-driving tractors that can plow fields on their own, based on data gathered from a suite of Deere-provided robots, drones, and tools.
Other tools can automatically plant seeds on a field, using precise measurements to put the seeds at the right depth. They can then give those seeds the exact right amount of water. And fully-automated sprayers can even distinguish weeds from crops, and spray only where necessary.
Every decision is based on data from sensors in the tractors and sprayers, as well as from drones flying above the fields, which measure water levels, soil health, and scan for pests and weeds. All this information is collected and analyzed by Deere’s proprietary software platform. Farmers gain access to it through a subscription, and can choose which functions they want access to.
Connecting all this equipment together enables Deere to continuously teach its algorithms from every field the company services, improving results for farmers not just across America, but worldwide.
This emphasis on robotics, automation, and subscription software has paid off big-time for Deere. Despite rising costs that are making farmers tighten their belts, Deere’s recent fiscal fourth-quarter report was a home run.
Its earnings soared eighty-one percent to $7.44 a share, beating expectations of seventy-three percent growth and $7.11 per share. Revenues jumped thirty-seven percent to more than fifteen billion dollars, again surpassing expectations of a twenty-seven percent increase and around fourteen billion dollars in revenue.
Even better, Deere announced that, despite all the headwinds, it was raising its expected numbers for the next quarter.
Certainly, an earnings win and expected raise in the middle of historically-high inflation is impressive on its own. But an eighty-one percent per-share earnings gain in a high inflation environment is astounding, especially considering the company’s previous quarterly increase was just sixteen percent. It shows how well-run Deere’s business is.
This eighty-one percent earnings jump is actually higher than Deere’s three-year average per-share profit growth of forty-two percent…
But even using the lower figure, we’d still see Deere’s earnings double in less than two years.
An investment in this company today sets us up to profit from rising food costs.
And in our “Trade of the Day,” I’ll show you how to magnify your profit potential with this opportunity. This is one you might not want to miss out on.
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