Deere is Doing Well. How About the Rest of Rural America?

Wal-Mart's sales may be slow, but ag stocks are doing well. The Yonder 40 collection of rural stocks is pulling away from the Dow and S&P 500.

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Don’t worry about John Deere. Some stock analysts worried about the farm equipment maker last year. “Deere Keeps Losing Traction” was the headline in Barron’s. Now Deere & Co. has reported record earnings and share prices are up 70% over a year ago.
This isn’t a story about one company. There’s a sense that the companies servicing farm country are doing well. “I think what this (Deere’s 19% jump in first quarter earnings) says is that the secular growth story within farms hasn’t gone away,” Credit Suisse analyst Jamie Cook says. “In short, the ag cycle is outperforming expectations and Deere is capitalizing wholeheartedly on its strength,” Lawrence T. De Maria, an analyst at Sterne, Agee & Leach.
But, hey, don’t stop with farm service companies. The Daily Yonder picked 40 stocks that reflect the rural economy and that index has beat the other major stock groupings for the past two and a half years. Since the beginning of this year, the Yonder 40 is up 7% while the Dow Industrials, the NASDAQ and the Standard and Poors 500 are all down slightly.
Since the beginning of 2009, the Yonder 40 is up over 42%, slightly better than the NASDAQ and nearly double the increase in both the Dow and the S&P 500.[img:Yonder40feb10.jpg]
This doesn’t mean that rural residents are doing as well as companies based in rural America. One sign that the recovery has not hit the rural route yet came in a report from Wal-Mart last week that same-store U.S. sales in the quarter ending January 31 fell for the first time.
That included the Christmas season, of course. Customer traffic was down during that time and comparable store sales dropped 2%. Wal-Mart officials said customers were nervous over the still-high levels of unemployment.
Deere is up nearly 15% since the beginning of February and, indeed, many ag-related stocks are doing well in 2010. Andersons is up more than 17% this month. Andersons produces ethanol and fertilizer. 
Meat producers are all doing well so far this year. Hormel — the maker of Spam and Dinty Moore Beef Stew — saw its first quarter earnings rise 37% and its stock is up more than 7% in February.
Smithfield Foods is up more than 12% this month alone and Tyson, the chicken producer, has risen more than 22%.
After a rough patch last year, coal companies have seen a rebound in their stock prices this year. Cimarex is up 22% in February and Peabody is up 12%. A full list of the Yonder 40 and how their stock prices have fared since the beginning of February is below.
[img:40Feb10.jpg]
There was other news about the Yonder 40 in the last week:
• Dean Foods, the milk producer, reports that it expects its legal costs to rise as it “vigorously” defends itself against three antitrust suits. Dean has acquired 40 smaller milk producers over the last 15 years and now controls 35% of the milk market.
• Gaylord Entertainment, owner of hotels and the Grand Ole Opry, has suffered during the recession, but now sees a revival. Its stock is up 17% this month.
• LifePoint, the owner of rural hospitals, saw its earnings rise 36% in the fourth quarter of last year. LifePoint’s stock is up 6.7% this February.
• Airlines have been shedding workers, with 5% fewer employees this past December compared to a year earlier. SkyWest, a Yonder 40 member and a regional airline, has reduced its workforce by 17%.

 

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