Warren Buffett's Berkshire Hathaway is sowing more funds into farm machinery giant Deere, and defensive investors are taking notice. Analysts consider Deere's good cash flow and dividend yield as attractive and see the potential for new stock buybacks as another positive.
After sinking 14 percent last year, Deere stock is up about 7 percent this year through Wednesday — handily beating the S&P 500 index and outperforming another multinational industrial play, Caterpillar. The stock is even beating Apple, Facebook and Google parent Alphabet.
A regulatory filing late Tuesday revealed that Berkshire Hathaway boosted its stake in Deere by about 5.8 million shares to about 22.88 million shares, or a 7.2 percent stake. Berkshire Hathaway is now Deere's largest institutional shareholder with a stake worth nearly $2 billion.
"Deere is a pretty safe dividend in a world where income alternatives are relatively low and not that fantastic," said Morningstar analyst Kwame Webb. He also cites the "safety and sanctity of the free cash flow" at Deere and adds that "it looks like the bottom is finally in sight for ag."
Deere is set to report fiscal first quarter earnings before the bell on Friday. Investors will be waiting to see if management provides an update on current full fiscal year guidance.
Webb believes Deere will generally maintain fiscal 2016 guidance for now but could make "a minor adjustment for currency," reflecting the impact of the strong dollar that continued to provide headwinds since the company's last update in November.
"Investors will be focused on any update to management's expectations for FY'16, including its U.S. farm income assumptions and agriculture market outlook by region," JPMorgan analyst Ann Duignan said in research note to clients on Wednesday. She noted that the U.S. Department of Agriculture last week made a downward revision to its previous estimates for current year U.S. farm cash receipts.
Duignan said industry fundamentals have not improved since Deere's last earnings conference call.