Deere (DE  ) shares were initially lower following the company's Q2 results due to a miss on the bottom line and lower than expected guidance. However, shares recovered on the day and finished in the green due to rising food prices with many parts of the world dealing with a severe drought.

Deere is one of the top ag stocks in the market, and it's managed to outperform in 2022 with a 10% gain YTD, while the S&P 500 (SPY  ) is down 15% YTD. Equally impressive is that DE has a forward P/E of 14 which is cheaper than the S&P 500 even though it is expected to grow earnings by 30% over the next year, while most analysts are looking for earnings to be flat over the next year.

Inside the Numbers

In Q2, Deere reported $6.16 in earnings per share, a 17% increase from last year, but short of analysts' consensus forecast of $6.69 per share. Revenue was up 22% at $14.1 billion and exceeded analysts' estimates of $14.1 billion by a healthy margin.

The company attributed its miss to supply chain pressures. And it expects these issues to persist for the remainder of the year. As a result, it reduced its full year earnings per share forecast to a range between $7 billion and $7.2 billion from its previous forecast of $7 billion and $7.4 billion.

On the company's conference call, Deere CEO John May said, "Looking ahead, we believe favorable conditions will continue into 2023 based on the strong response we have experienced to early-order programs. We are working closely with our factories and suppliers to meet higher levels of customer demand next year. Additionally, we are confident the company's smart industrial strategy and leap ambitions will continue unlocking new value for customers through Deere's advanced technologies and solutions."

Deere remains one of the best ways for investors to play continued strength in the agriculture sector which continues to be compelling after its recent downdraft over the past few months. In essence, the energy crisis in Europe which is leading to soaring natural gas prices also has spillover effects in terms of urea prices which are used for fertilizer.

Higher fertilizer prices mean higher food prices, and higher food prices mean more revenue for companies like Deere. On top of this, Deere is quite cheap with a forward P/E of 14.5, dividend yield of 1.2%, and 12% profit margins. Technically, the stock has shown impressive relative strength over the past couple of weeks when the overall market is down by close to 7%.