Construction-related spending took a nose dive following the bursting of the housing bubble nearly a decade ago.global-economic-recovery

Specifically, U.S. construction spending fell by 40% in less than five years from 2006 to 2011.

But the moves for large construction companies were much more violent. Two major construction equipment players, Caterpillar Inc. (NYSE: CAT) and Deere & Co. (NYSE: DE), fell by nearly 70% in a year’s time in 2008 and 2009.

Since then, the recovery for these stocks has been slow and steady. However, one of them could have fundamental problems, while the other has serious tailwinds.

Shares of Deere are up over 5% year-to-date, while Caterpillar has fallen close to 5%. This is a trend that should continue throughout the year.

In fact, it’s a trend that started three years ago. Over the last three years, shares of Deere are up 31%, while Caterpillar is up just 3.5%. This comes as Deere has the more sustainable end market as a major player in the expanding agricultural market.

The fact that food consumption is on the rise worldwide is a big positive for Deere. It’s the global leader in farm and agricultural equipment, generating about 80% of sales from agricultural equipment.

The biggest tailwind is the buildout of agricultural networks and workforces in emerging economies like China and India. Brazil is also quickly becoming a bigger player for Deere.

In truth, Deere is seeing a turnaround after hitting a rough spot due to the strong dollar and harsh farming conditions from global droughts. It released earnings last week that beat consensus with the help of cost controls and margin expansion.

There are still plenty of improvement opportunities that could drive Deere’s stock higher over the interim. Deere was pulling in upwards of $38 billion in revenues the last couple of years. However, this year revenues are trending at 20% below that level.

As things turn around for farmers, Deere’s sales and margins should see a rebound. Its operating margins are down a couple percentage points from just a few years ago.

Meanwhile, there’s Caterpillar. It has a vast network of dealers, but it’s still lagging major peers in the faster-growing countries like China. And its foray into the international market via acquisitions hasn’t worked out so well in the past – recall the massive write-down of its acquisition of Hong Kong-based ERA Mining Machinery. There was also the SEM acquisition, which was a Chinese low-end equipment maker. That acquisition largely turned out to be a flop.

The other thing that makes Caterpillar less appealing than Deere is its exposure to the volatile coal mining markets. Coal has become a “dirty” word, leading to a shift away from coal consumption, at least in the U.S.

Both companies are reliant on the global economy, but the fact that Deere is exposed to a growing trend – more people eating more food – versus Caterpillar’s exposure to the declining coal market, means that there is a clear winner.

Deere trades at a more attractive valuation and has an enticing 2.6% dividend yield. Although it’s below Caterpillar’s 3.25% yield, it’s worth noting that Deere has paid a dividend for 42 straight years, versus Caterpillar’s 34-year streak.

For a play on the global economic recovery, Deere looks to be the best bet. And let’s not forget that Warren Buffett’s Berkshire Hathaway (NYSE: BRK-B) has been a major Deere shareholder for close to three years.

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Published by Wyatt Investment Research at