A Stock for the New Economy

By Chloe Lutts

Tractors: The Next Generation


A Stock for the New Economy

Earlier this month, my father (Timothy Lutts) wrote here about our family’s 1948 Ford 8N tractor. He shared a little family history, then asked for your thoughts on replacing it with a newer model. A week later, he followed up by printing many of your responses, which overwhelmingly recommended keeping the tractor.

Interestingly (to me at least), one of the most-cited reasons for keeping the tractor was “for the children and grandchildren.” As one of those descendents, I thought I’d weigh in to the tractor conversation.

My memories of the tractor primarily involve taking bumpy birthday rides behind it as a small child, in a wagon padded with hay. They were quite a treat for my friends from the rest of Salem, which isn’t a farm. More recently, I also remember the tractor breaking down on occasion, and sometimes getting stuck in the various pits and depressions that hide in our fields. I’ve never driven it, but I appreciate its presence. Like the barn it lives in and the fields it mows, it’s a tangible reminder of my history and my family’s history, and I like having that reminder around. Plus, it’s still a novelty for my city-dwelling friends who come to visit.

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In addition to your concern for the next generation, many of you who wrote in also pointed out that the tractor represents a disappearing aspect of America. As one reader from Nevada wrote: “The tractor also represents: Corporate America all the way back to the Industrial Revolution, wonderful American engineering and great American Labor, American Culture and American History.” That’s true too of course.

Interestingly, at the same time this perspective applauds these American traditions, it also acknowledges that they are more or less relics—just like the Ford 8N. In fact, the same reader suggested creating a sort of “museum” for our tractor, complete with a plaque.

I also noticed that one of the tractor brands suggested multiple times as a possible replacement was Kubota. Now I’d never heard of Kubota before, but Googling it confirmed that Kubota is a Japanese company, headquartered in Osaka. In the U.S., the company sells tractors through the Kubota Tractor Corporation, headquartered in Torrance, California. A third of those tractors are manufactured or assembled at the company’s factory in Georgia.

Interestingly, the other companies you mentioned—John Deere and New Holland—are international too. New Holland was created by the merger of companies based in the U.S. (including Ford Tractor), Belgium and Italy. And John Deere, though its American roots run deep, now has factories in Argentina, Brazil, Canada, China, Finland, France, Germany, India, Mexico, New Zealand, The Netherlands, Russia, South Africa, Spain and Sweden—in addition to the United States.

So it’s no surprise our readers urged us to keep the tractor: It really is a tangible artifact from an America that no longer exists.

For some, that’s a cause for sadness. But—probably partly because I’m neither the first nor second but third generation tractor “owner”—I see it as a sign of progress.

For decades, making things like tractors was a huge part of the American economy. But then the world changed, and, more than anything perhaps, America changed. The most dramatic evidence of this change may have been the bankruptcies of GM and Chrysler, symbols of that old America, caused partially by the giants’ inability to anticipate American consumers’ desires as well as their overseas competitors could. They’re addressing this problem now—the Chevy Volt is a good example—but it’s safe to say their golden age is over.

The obvious loss is in jobs. Thousands of manufacturing jobs that helped create the strong American middle class will never return to our shores. And that is already causing much individual hardship, which will doubtless continue as our manufacturing sector continues to shrink.

Sad as these stories are, though, they’re the growing pains of a new economy that will allow America to remain a world leader for decades to come—something we never could have done by continuing to make tractors. 

The way I see it, the backbone of this new American economy will be innovation, and more specifically, technological innovation. Many of the world’s greatest strides in medical technology, military technology, consumer electronics technology, scientific technology, and even industrial technology are being made in America. And it’s these innovations that are now the most valuable thing we have to offer the world.

So even as our old industrial economy fades into the past, there’s no need for America to resign herself to aging gracefully into obsolescence. Instead, we can stay at the forefront of today’s greatest growth industry as the brain of the world.

As an investor, you can take advantage of the growth of this new economy by investing in innovative companies in growth industries. Technology and Green are two of my favorites.

One interesting stock in the technology area is Red Hat (RHT), which was recommended in the most recent Dick Davis Digest by Kevin Kennedy, Editor of the Coolcat Technology Plus Report. I know Red Hat for its free, open-source Linux operating system (an alternative to Windows and Mac) but the company also provides paid enterprise-level services (NYSE Euronext is a client). Of the stock, Kennedy wrote:

“Red Hat (RHT) provides open source enterprise software solutions. The company has reported sales gains for eight straight years and has 30 straight profitable quarters to its credit. It has also recorded year-over-year quarterly revenue gains for 28 straight quarters. It has no debt and more than $800 million in cash. The steady growth has attracted a premium valuation as it’s valued at more than seven times sales and has a PE of 64. The stock broke out of a four-year base to barely set a new all-time high in June, but has since pulled back about 6%.”

To learn more about Red Hat and other top stocks featured in Dick Davis Digest, click here!

Wishing you success in your investing and beyond,

Chloe Lutts
For Cabot Wealth Advisory


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