John O'Connell, CFACaterpillarCATBUYAug 20, 2019

He sold most of it. Trading at 35x forward PE is insane for a highly cyclical, capital-intensive company. It should be around 15x PE. We don't know how long this rally will last, but CAT has always been cyclical. He expects them to report a good quarter, though.

It's not just an AI story, it's also power generation, mining, and infrastructure. It's a multi-year play. Shares are up 65% this year. It's price to perfection now and would buy it only on weakness.

Not just heavy yellow machinery anymore. Increasingly tied to power demand, electrification, industrial expansion, and the theme of reshoring. Sales targets for power generation segment have increased. 

Backlog is ~$63B, very strong revenue visibility. About 25% earnings growth rate over next few years. Yield is 0.68%.

Their 50-day average has been rising since last summer. If you own, ride that 50-day and let the market tell you when the rally's over.

He bought; is very bullish. All the infrastructure play flows through CAT. If the stock splits, it will go much higher. Is up 142% this year, and 70% of this move is from AI. A short position in this in outlandish; a stock like this doesn't usually grow to the sky.

They actually build the data centres, but the moment the hyperscalers say they're pulling back on that spending, watch out.

It hit a new high yesterday. He sold part of his position. Is not cheap now at a high valuation. It's purely an AI trade.

It hit a new high yesterday. He's been trimming into strength so that he creates dry powder.

Hasn't owned, as it's always been too cyclical. Safer way to play mining. Ran so fast, so quickly. PE multiple north of 30x, so a lot of positive things are already baked in. FCF yield is very small. Growth profile quite robust, but if that were to get hit then valuation would come off.

In the industrial space, names with more attractive growth than HON's include CAT, GEV, and VRT.

He trimmed it. Trading at a 32x forward PE, but typically in the mid-teens. As long as data centres are being built, this will participate, but it doesn't hurt to take some money off the table.

They host an HQ visit for investors on Monday. Their construction division is essential to the data centre build. It trades at 36x PE like a tech stock. He likes it, but it's overheated. Does it merit the premium?

Driven by tailwinds in oil/gas, infrastructure and the data centre build.

Has seen many upgrades. Their earnings were out of control. They have $60 billion in backlog orders, and revenues up over 20%. Loves it.

Since he bought it last May 25, it's up 140%. Insane. He is taking profits. It's overvalued here. It's not just a data centre story.