Call Buyers Could Keep Winning With Deere Stock

Deere options are attractively priced

Managing Editor
Jan 10, 2018 at 3:25 PM
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Deere & Company (NYSE:DE) turned in a strong annual return in 2017. However, the stock could have more fuel in the tank. Although DE stock was last seen down 0.6% at $164.54, the shares hit a record high of $168.44 earlier after receiving some bullish analyst attention, and just flashed a familiar buy signal. 

Deere & Co stock was upgraded to "outperform" from "sector perform" at RBC this morning, with the brokerage firm also raising its price target to $190 from $155. The analyst in coverage said Deere's farm machinery and earth-moving equipment create a "potent combination." Two other brokerage firms chimed in with price-target hikes, as well, including Wells Fargo to $200 from $170 -- the highest on the Street -- and Barclays to $171 from $167.

It could be time to bet on the stock's next leg higher with options, too, considering its Schaeffer's Volatility Index (SVI) of 16% is higher than just 7% of all other readings from the past year, pointing to relatively attractive short-term premiums amid muted volatility expectations. Additionally, a lofty Schaeffer's Volatility Scorecard (SVS) reading of 97 suggests the security has tended to make outsized moves over the last 12 months, compared to what the option market has expected.

The other five times Deere stock has been trading near new highs while its SVI has been ranked in the bottom 10th percentile of its annual range, looking back to 2008, the shares averaged a one-month gain of 2.28%, according to data from Schaeffer's Senior Quantitative Analyst Rocky White. Plus, the stock was positive 80% of the time a month later.

In spite of this strong technical showing, plenty of skeptics still surround the security. Roughly half of the 15 analysts covering DE stock maintain a "hold" or "strong sell" rating, while the average 12-month price target of $161.38 stands at a discount to the equity's current perch. This leaves the door wide open for more upgrades and/or price-target hikes to keep the wind at Deere's back.

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