Over 30% Downside Risk For Deere Stock?

Deere (NYSE: DE), has outperformed with 10% gains this year, versus a 2% fall for the broader S&P 500 index. Why the strong performance? Deere is currently navigating a cyclical downturn, and investors anticipate a recovery may be around the corner.

But consider this: How would you feel if Deere stock dropped by 30% over the next two months? What about 50-70%? This isn’t fiction – it happened during the 2008/2009 financial crisis and again during the 2020 COVID-19 pandemic.

There’s no denying the rising concerns around macroeconomic uncertainties. The Trump administration’s tariffs would remove cheaper goods from the market, causing prices to rise. These factors could potentially push the U.S. economy into turbulence or even recession, as detailed in our macroeconomic analysis. Geopolitical factors add another layer of complexity, with the ongoing Russia-Ukraine conflict and evolving U.S. involvement in the situation, with a pending mineral deal and sharing of intelligence with Ukraine. ^[1]

“What does this have to do with Deere?” you might wonder. Here’s why it matters:

Yes, Deere’s business has struggled lately due to declining agricultural income, which is expected to improve this year, thanks to federal aid. However, elevated interest rates will make it more expensive for farmers to finance equipment purchases. If inflation spikes again, will the Federal Reserve be prepared to cut rates aggressively? We don’t think so. Even with anticipated growth in farm income, the risks of macroeconomic uncertainty and high-interest rates don’t bode well for Deere.

Furthermore, while China’s imposition of tariffs on agricultural equipment imports may have minimal impact on Deere due to the company’s limited exposure to the Chinese market, tariffs on metal imports by the U.S. will certainly affect production costs. These increased costs could subsequently reduce demand from farmers.

Now, China has recently announced tariffs on various farm products, which would lead to higher costs and shrinking markets for American agricultural goods, creating additional economic challenges for farmers. ^[2] Given these troublesome circumstances, it seems questionable whether farmers will be willing to invest in new farm equipment in the near term, despite an overall decline in input costs lately.

Certainly, Deere has created substantial wealth for long-term shareholders. Nevertheless, investors should acknowledge the company’s vulnerability during economic downturns. The evidence from 2020 illustrates this risk clearly, when Deere’s stock plummeted by more than 35% within just a few weeks. This historical pattern raises an important question: could Deere’s current $480 share price potentially retreat below $350 if similar market conditions return? For those seeking growth with reduced single-stock volatility, the High-Quality portfolio presents an alternative, having outperformed the S&P 500 and generated returns exceeding 91% since its inception.

How Resilient Is DE stock During A Downturn?

We notice that DE stock has fared worse than the benchmark S&P 500 index during some of the recent downturns. Worried about the impact of a market crash on DE stock? Our dashboard How Low Can Stocks Go During A Market Crash captures how key stocks fared during and after the last six market crashes.

Inflation Shock (2022)

• DE stock fell 33% from a high of $420 on 18 April 2022 to $280 on 6 July 2022, vs. a peak-to-trough decline of 25.4% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 23 Nov 2022
• Since then, the stock has increased to a high of $509.27 on 19 February 2025 and currently trades at around $480

COVID-19 Pandemic (2020)

• DE stock fell 37.4% from a high of $177.43 on 23 February 2020 to $111.15 on 23 March 2020, vs. a peak-to-trough decline of 33.9% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 29 July 2020

Global Financial Crisis (2008)

• DE stock fell 73.8% from a high of $94.69 on 14 January 2008 to $24.83 on 2 March 2009, vs. a peak-to-trough decline of 56.8% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 11 February 2011

Premium Valuation Amid Slowing Growth

It’s not that Deere stock is trading at a low valuation because of its recent cyclical downturn. In fact, Deere’s current valuation presents another challenge, as the stock trades at premium multiples of nearly 3.3x last year’s sales and approximately 19x last year’s earnings. These metrics exceed the company’s four-year historical averages of 2.5x sales and 16x earnings. Further complicating the investment thesis, Deere faces decelerating growth prospects, with consensus estimates projecting a revenue decline of 15% and an earnings decline of 25% in 2025.

Given this growth deceleration and the broader economic uncertainties, ask yourself the question: do you want to hold on to your Deere stock now, will you panic and sell if it starts dropping to $350, $250, or even lower levels? Holding on to a falling stock is never easy. Trefis works with Empirical Asset Management — a Boston area wealth manager — whose asset allocation strategies yielded positive returns during the 2008-09 period when the S&P lost more than 40%. Empirical has incorporated the Trefis HQ Portfolio in this asset allocation framework to provide clients better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

[1] Returns as of 3/7/2025
[2] Cumulative total returns since the end of 2016

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1. Trump Administration Pauses Intelligence Sharing With Ukraine, Julian E. Barnes, Michael Schwirtz, Eric Schmitt and Adam Entous, March 5, 2025, The New York Times [↩]
2. American Farmers Brace for Harm From Retaliatory Tariffs, Danielle Kaye, March 4, 2025, The New York Times [↩]