This is a rally about AGCO Corp (AGCO) . You probably don't even know AGCO. It is an agglomeration of agricultural brands: Fendt, Massey-Ferguson, GSI -- household names if you ever owned a farm as I have. Your Massey-Fergusons last forever.
I know AGCO, the company, because there's a man who runs it, Martin Richenhagen, and he is a total delight. He's been coming on Mad Money for the last five years, telling me about how his company is quietly accumulating cast off ag equipment companies and spending research and development money to revitalize them, while simultaneously buying back stock because the cycle is troughing and the stock is so darned cheap.
But, in truth, commodity prices have collapsed during the period he's been in the market picking and picking, so every time he's been on I always ask him: what's so cheap about his stock? Why buy it?
He always said the same thing: the agricultural cycle, which has been so miserable, will turn; and when it does, his company will have the best equipment and there will be so few shares outstanding, because he would have bought them back incredibly inexpensively as people had given up on the company. In 2013, AGCO had 99 million shares. Now there are 80 million shares. He bought them all the way down. As of this week, it's right on the verge of taking out is three-year high.
Now both AGCO's stock and the stock of Deere (DE) , seven times the market cap of Agco after this big run, which shrank its share count from 385 million to 314 million in the same period, are just flying.
Because the cycle has turned. Agco, which has 53% of its business in Europe, including Russia, is seeing an incredible comeback, raising its 2017 estimate three weeks ago from $2.41 to $2.50.
And that's basically quarter one of the turn.
This company has about $6 in earnings power when the cycle's good and it is only at $60. There are 17 analysts who follow it and it has one buy, three sells and the rest are just holds. Tinder. Dry tinder.
Why do I say this is a rally about AGCO? Because, let's say you ran a trading desk and your portfolio manager came to you and said that he missed the move in Deere and he wanted to buy something like it, AGCO, you could only hope that the PM wouldn't want too many shares. I think a 500,000 share order of this $5 billion company moves this stock $3. If that happened, then I think one of these naysaying analysts upgrades. It would only take one.
And the thing shoots to $70, where it still isn't expensive if the cycle is turning as Martin says is now the case.
The reason? Not because AGCO's the best in the world. It's a good company. Not because the cycle's so powerful. It could be a good one, especially as Brazil is coming back and the farmers always have their way with the European governments and the ruble is strong.
No, Martin's stock is going to go higher because he freakin' bought the heck out of it when it was low and there's no supply.
There are tons of AGCOs out there. Companies that stood by and watched Action Alerts PLUS charity portfolio holding Facebook (FB) go to the moon or Salesforce (CRM) skyrocket or Growth Seeker portfolio name Amazon (AMZN) endlessly rally and just said "you know what? We are way too cheap. Our best investment is our own stock, because in the end the 'feed the world' thesis -- or whatever cyclical business that turns out to be more secular than we thought -- never goes out of style."
It's funny, sometimes Martin would come on, like when Brazil was collapsing, or sanctions would be put on Russia, and I would just feel bad for the guy. I mean he was like Job, or something.
Now I look at that stock and I think, holy cow, he knew; he knew what a bargain it was. It was worth having him on all along. Good call by the bookers.Because this is a market about the AGCOs, the unsung, the metal-bending companies that just soldiered through, like Andy Dufresne pulling himself through that nasty tunnel to get outside the walls of Shawshank and now, well I'll be, the darned thing's sure feels like it ain't looking back.