Pick and Shovel Plays Don’t Go Out of Style

When times get tough, some types of companies have some big problems. Others tend to fare well. Those that do well succeed in part because they’re in a recession-resistant industry. One type of company fitting that bill is one that offers pick and shovel plays.

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  • While that can mean those specific tools, the broader concept is the infrastructure and tools needed to keep an economy or sector going. These stocks tend to hold up well, even in fearful markets.

    One such play is Deere (DE). The agricultural equipment maker may not trade like a growth stock, but with food prices rising, the company’s tools and equipment are in just as much demand as ever. That’s especially true with food inflation now running at an annualized rate of 10 percent.

    The company has been a slow-and-steady player, with revenue up 11 percent in the past year and earnings up 17 percent. Shares are up 2 percent, slightly more than the overall market.

    Action to take: The company is trading at less than 15 times forward earnings, a solid valuation in today’s market. The slow and steady growth, plus the 1.2 percent dividend, make for a reasonable long-term holding for investors here.

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  • For traders, any news about food production could lead to a spike in shares. The January 2023 $400 calls, last going for about $20.15, could deliver mid-double-digit gains on such a jump higher in the coming months.


    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.