Today's matchup is Caterpillar (NYSE: CAT) vs. Deere (NYSE: DE). Using five short-of-scientific-but-carefully chosen criteria, let's determine which is the better buy according to the numbers:
Round 1: Cheapness
Advantage: Deere. Cheapness is determined by P/E ratio. The lower the better. Be careful of earnings near zero that skew the ratio, one-time gains and losses, and pasts that aren’t indicative of futures (the more dynamic the industry, the more this is true).
Round 2: Growth
Advantage: Deere. Growth here is the trailing 5-year EPS growth rate. This trailing earnings growth helps put notoriously optimistic Wall Street projections in perspective.
Round 3: Operations
Advantage: Deere. Net margins shows the percentage of revenue that hits the bottom line. The more similar the business models, the more relevant the comparison.
Round 4: Balance sheet
Advantage: Deere. As with net margins, the debt-to-capital ratio is most relevant in comparing companies in similar industries. In this battle we give the nod to the lower-debt company, but attention should also be paid to the cost of debt, interest coverage ratios, and the stability of the business (the more stable a company’s operations, the more debt it can safely carry).
Round 5: CAPS rating
Advantage: Deere. A company’s CAPS rating is our community’s opinion of the stock. Deere has a slightly greater numerical CAPS rating than Caterpillar (even though they have the same number of stars). You can get more information on your stocks -- and our community’s opinions of those stocks -- by clicking over to CAPS.
Each of these five rankings need more context -- like, how these companies stack up against key competitors such as CNH Global (NYSE: CNH) and Illinois Tool Works (NYSE: ITW). But these basic numbers suggest that Deere is a better buy. What do you think? Let us know in the comments section below.
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