Takeaway: We are adding Deere to Investing Ideas today.

Editor's Note: Our Industrials analyst Jay Van Sciver will send out a full, detailed stock report outlining our high-conviction short case next week. In the meantime, below is a brief summary of our thesis written by Hedgeye CEO Keith McCullough in Real-Time Alerts earlier today.

DE: Adding Deere & Company to Investing Ideas (Short Side) - john deere

As many long-term followers of Hedgeye know, we have at least 30 excellent SELL ideas that aren't currently on the short side of Real-Time Alerts.

While I made some mistakes going back to the well on some names that had been imploding (on the short side) in FEB, I think I did a good job staying away from putting a lot of names back on the short side too early during the MAR-APR squeeze.

Time and prices change, but intermediate-term SELL calls from my Research Team (the one that's kept you from chasing charts high in the last few years) rarely do.

Deere (DE) is one of those core short ideas that I wanted to bring back in focus alongside an immediate-term TRADE overbought signal. 

Per our Industrials guru Jay Van Sciver, we see DE as a highly cyclical capital equipment supplier to a mature, zero growth industry.  Deere’s key, high margin franchise is large, North American ag equipment.  Prior to 2014 or so, that market experienced a decade long surge in equipment sales, driven by soaring crop prices, increasing land values, and comparatively easy credit.  Since peak, these factors have begun to roll over.  We expect the hangover – elevated new & used equipment inventories, excess manufacturing capacity, tightening farm credit, and declines in farmer equity – to be a prolonged affair that gradually takes equipment sales below ‘normalized’ demand.