Deere: A Season of Yield

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Cathie Wood’s Ark Innovation ETF, a vessel charting courses through the restless sea of disruptive technologies, holds a curious bloom: Deere & Company. One might ask, what kinship does a maker of tractors bear to the ethereal promise of artificial intelligence? Yet, within the steel and combustion, a transformation stirs. Deere, accounting for a modest 1.8% of the Ark portfolio, is no mere relic of agrarian life, but a nascent intelligence itself – a machine learning the language of the soil, guided by cameras that discern the weed from the wheat, and sustained by the cloud’s endless expanse.

The market, quick to scent opportunity, has already offered its benediction. Deere’s shares, ascending with a near 30% climb at the year’s opening, reflect a belief in this metamorphosis. But the seasoned investor, like a cartographer tracing the contours of a shifting landscape, must pause and consider the deeper currents at play.

The Long View

Against the muted tones of a largely stagnant S&P 500, Deere’s ascent appears all the more striking. Yet, a wider gaze reveals a more nuanced truth. Over five years, Deere has climbed a respectable 91%, while the broader index gained 75%. Factoring in the gentle accrual of dividends, Deere’s total return of 106% edges out the S&P 500’s 87%. These are not figures to dismiss, but neither do they proclaim a singular, unassailable triumph.

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Before committing to this field, one must weigh the particularities of the harvest.

Turbulence for All Seasons

Agriculture, like life itself, is cyclical. Periods of abundance inevitably yield to lean seasons. The earth remembers, and so too must the investor. Deere’s CEO, John May, has spoken of 2026 marking the nadir of the large agricultural cycle, a time of margin pressure and persistent challenges. It is a sobering admission, a recognition that even the most innovative machinery cannot entirely defy the rhythms of nature.

The company’s projections echo this sentiment. A net income of $5 billion in fiscal 2025 is expected to recede to between $4 and $4.75 billion in fiscal 2026. This is not a collapse, but a recalibration, a return to a more sustainable equilibrium. The recent surge in share price may, therefore, be a gamble on timing – a belief that investors are positioning themselves ahead of the cycle’s inevitable turn.

Watch Your Step

To be seduced by momentum, to chase the fleeting promise of immediate gains, is to walk on treacherous ground. Deere’s current forward price-to-earnings ratio, hovering around 36, is a rich valuation indeed, a departure from the 22-30 range maintained throughout 2025. It suggests that expectations are already priced in, that the market has anticipated a resurgence. This creates a precarious situation, leaving little room for error.

The free-cash-flow yield, a measure of the cash a company generates relative to its market capitalization, offers another perspective. From October 2021 to October 2025, this yield averaged 2.9%, but has since fallen to around 2%. This subtle shift indicates that investors are paying a premium for each dollar of Deere’s cash flow, a testament to the prevailing optimism, but also a potential harbinger of vulnerability.

Next Move to Consider

To invest in Deere today is to acknowledge the shadow cast by these warning signs. Management has already conceded a decline in earnings, and the challenges persist. The expectations embedded in the share price are lofty, and difficult to meet. We shall learn more when Deere reports its fiscal 2026 first-quarter results. But at these valuations, the discerning, long-term investor – one who seeks not fleeting excitement, but enduring value – may find more fertile ground elsewhere.

The land remembers. And so must we.

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2026-02-18 23:04