Caterpillar (CAT)

Canada has had a huge bounce, and none of these prices make any sense when you look at fundamentals, including mining. His model price is $47.51, a negative 38%. Dividend yield of 4%.

When you look at a collapse in an asset class, such as energy in the last 18 months, he has never seen where it bottoms and turns around, and becomes a new leader right away. We have had a great rally in energy and there is some risk that as we get back the cost of production, new production will come on. This company had a tremendous rally since February, but is looking a lot like the energy and metals sectors, and there is some risk that it runs into resistance here and could roll over.

*Short* This has had a really nice run off the bottom and is up about 35%. They capitalized big time on a once-in-a-lifetime mining boom, and he doubts if we are going to see that again. There are just too many headwinds. The street is talking up the name, but he could see this halved in price in the next year or so. Dividend yield of 4.09%.

Their segments include mining, energy exposure and construction around energy. If you look at all their segments, there is just no good part of the business that is working right now. Have done a fantastic job of managing costs, but it is a very tough environment. The big question is, where are we in the cycle and are we close to a bottom. Expectations are still being reset lower with some caution on the stock. Reported in April and earnings came in slightly below. Revenue was better, but they did cut their profit outlook.

A great company but a chunk of their business is tied to mining. He looked at it and decided he would step in at $60.

Industrials have broken out and it is very positive right now. The chart has turned, but it is still early in the turn. Dividend yield of about 4%.

This is going to behave much like emerging markets, and much like the commodity space, and is very close to the epicenter of the problem of the market. Expects it will continue to be under pressure. Even if commodity prices bottom, which he doesn’t think will happen soon, they are likely to remain weak for a long period of time.

Looks attractive at 13 X earnings, but thinks there will continue to be a slowdown in many parts of the world. Wouldn’t jump into this at this time. Trading well below its 200 day moving average and is below the 50 day moving average as well. Technically there are lower lows and lower highs. Dividend yield of about 4.9%.

There is no near term catalyst as their end markets are weak. There is also an inventory of used equipment out there. The balance sheet is strong and the yield is attractive and safe. There are other areas of the market that are more attractive.

Sold his holdings about 6 months ago, just on valuation. It really comes down to global growth for them. Global growth has been dropping. Great company with great products. He is hoping to pick this up at a lower price.

Agricultural demand for equipment sales was down quite a bit in 2014. They cut costs to stay profitable, which worked. Year-over-year they were positive for 2014. Coming into 2015, the energy crisis hit, so demand for energy equipment is down. There isn’t a real growth catalyst there. They do business in over 180 countries and 75% of their revenues is global, so they have also suffered from the strengthening US$.

Despite some improvements in the construction equipment business, this continues to be hampered by weakness in the mining equipment business. This is one he would be cautious on. Trading at 17X forward earnings with about an 8% long-term growth. This makes it expensive at a 2X PEG ratio.

Industrials tend to have a period of seasonal strength between January all the way through to May. This one is no different. The average gain for that period is about 15%. However, this one is not doing too well. Since we do have a significant low in the US$, and it is going to trend higher over the long term, what you see is the material stocks and the energy stocks tend to underperform over the long-term. This looks like it is struggling right now.

China has a big role in this one’s prospects. They also are impacted by the general construction industry. He is concerned here. There are so many rigs coming off line. He would be hesitant to invest in this one at this time. HON-N would be his preference.

Where this company goes, depends on China. Last year, with mining equipment sales down, they had to really cut prices to finish the year in the green. In 2015, there are all kinds of declines, especially in the energy space. In terms of their agriculture and equipment sales, he thinks they’re going to continue the need to cost cut to keep revenues up. He can’t see where the growth catalyst will come from.