Bet the farm on Deere

Deere's homeland is the US - drive through any rural district in North America and you can't fail to notice equipment bearing the group's distinctive green and yellow livery, while around three-quarters of group profit is made there - but Deere is expanding beyond its home market. Last year the group announced plans to build seven new factories in markets critical to growth, including three in China, two in Brazil, a tractor factory in India and a facility in Russia. Over half of Deere's workforce is now located outside the US.

Demand for Deere's agricultural products is accelerating due to the rise of the agribusiness sector in countries such as Brazil, which has turned itself from a net food importer into one of the world's biggest exporters in a little under three decades. In other markets, demographics are a factor; despite recent advances, around 46 per cent of China's farmland is still worked manually. Beijing is desperate to boost yields at a time when young people in China are leaving rural areas in droves - and increasing the level of mechanisation is one solution. Sales of farm machinery in China are forecast to grow by 10 to 15 per cent a year over the next decade.

India, too, is pressing to increase farm output through modernisation. Admittedly, the group faces established competition in India through local manufacturers like Mahindra, which pursue a more price-driven business model. Deere will need to differentiate itself from cheaper local rivals through its technological primacy in order to grow its share of the market.

Deere has invested heavily in order to tap into these emerging markets trends, but it's also been making itself more efficient. The advantages of this lean new business model became apparent when orders dried up as a result of the 2008 financial crisis. Deere was able to swiftly cut production and reduce inventories without implementing the sort of large-scale retrenchments that can hamper a company's recovery. Although profit margins halved to 6.5 per cent over the following year, the structural changes undertaken by Deere meant that its performance hadn't been blighted to the same extent as in previous downturns. Within a year the headline pre-tax margin was back into double figures.

This new-found resilience is worth considering given that Deere operates in some highly cyclical segments of the economy, and margins are increasingly at risk from price increases for raw materials and energy.

The group's transformation in terms of operational efficiency shouldn't detract from its ambition to drive sales to $50bn (£31.5bn) by 2018. This represents a 70 per cent step up from current levels, and will partly depend on whether planned investments will enable the group's construction equipment business to penetrate markets outside of North America. While Deere intends to compete with the likes of Caterpillar and Komatsu on a global basis, a sustained recovery in the US construction sector would also provide a significant boost.