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Caterpillar (CAT), A Sleeping Monster

May 04, 2013 | About:

Eaglenest

Author's Website
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I´m long on the U.S. economy after watching, once more time.., a nice recovery in U.S. labor markets, with the creation of 165,000 new jobs, so in my humble opinion, if I have to choose one American industrial company, I would choose Caterpillar Inc. (CAT).

Caterpillar Inc. (CAT) is well managed and it has a long way up to run, due its underperfomance in the last several months. Heavy industrial equipment has a bright future, once the global economy starts to sail in recovery waters, after the worst global depression I´ve ever seen. Caterpillar Inc. (CAT) has a broad and diversified catalog of heavy industrial equipment used in construction, infrastructure, farming, oil and gas, mining and utilities. Caterpillar is recognized for its "best of breed" brand and quality.

Technically speaking, CAT has a nice, triple-bottom pattern on weekly charts with heavy reversal volume and a powerful stochastics crossing in the lower band, and its market share price target is going to be re-evaluated upward sooner or later.., so going long on this undervalued company could be a nice business in the next months or years. We all know that once a company becomes a bright spot recognized by Wall Street analysts, valuations can skyrocket to unprecedented levels, so why not dream about doubling today´s CAT´s price in the market?

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About the author:

Eaglenest
I am an individual investor that is writting a blog for Spanish readers about North-American Markets, to share information and investment ideas in the other side of wide Atlantic.
Improving knowledge about NorthAmerican markets to Spanish investors will help to improve confidence to make global markets more liquid..

Visit Eaglenest's Website


Rating: 1.8/5 (11 votes)

Comments

huang.touchstone
Huang.touchstone premium member - 1 year ago
Dear, it is funny that triple-bottom pattern gives you full reason that CAT will be a good investment. CAT is not a good target in my pointview. Huge investment for maintaining the business on-going compares with the depreciation amount. Free cash flow is not stable over years and only thing you may bet is the timing of the world economic recovery, but it is very hard to do that as a value investor. Though the company announced recent buyback plan but it would not finance the plan with its own free cash but to raise debt to fulfil the plan. The Fed's low interest rate is a favor for the company,but how long will it last? Eventually shareholders will pay the debt. The company is using financing to support the stock price! Wish you good luck.
Eaglenest
Eaglenest - 1 year ago
Hi Huang:

Thanks for your comment...

As a value investor, I am convinced that buying back CAT´s shares at this market´s price level will pay some benefits for shareholders, it´s a smart buy because management knows better than anybody else; investors or analysts the future business trends of the company. You mention that free-cash flow in the company is not stable, of course Caterpillar Inc. is an industrial company with variable free-cash inflows; but if I am right in timing the market cycles, we could be navigating at the bottom of a downturn cycle, with an exceptional period of low lending rates, overall for big companies like Caterpillar Inc, with so good skills by rating agencies. It is not a secret that "cash cow.." companies like Apple (AAPL) for example.., with plenty free-cash inflow in its balance sheet is doing its recent buy-back with debt. So.. why not financing CAT´s buy-back with debt with profiting from exceptional low cost financing conditions in the USA, that is why I don´t see any problem in financing buy-backs with "money for nothing.." debt, just a smart way to improve or manage near term company liquidity, You can repay the debt when improving economic conditions return to the market and the company generates more free-cash flow, It´s all about a cyclical question. I have to say.., that i´m not an economist or an expert accountant, just my humble seasoned investor opinion..

Regards and good luck for you Too..

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