Caterpillar (CAT)

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.

(Top Pick Oct 30’13, Up 22.60%) They came out with disastrous earnings about a year ago and gapped down. After gapping down, stocks usually get filled back in again.

(Market Call Minute.) He is just not bullish on mining right now, which is a big part of their business.

Very much tied to the global economy. Stock has not done that well. There has been a slowdown in mining which is not good for this company. Some of the regions were over inventoried, so they were not selling. A high quality name. Still a little too early to Buy. If gold does eventually pick up, this company will do fine.

We may start to see a pickup with the general economy, but doesn’t think you will see the moves in this like we saw going back several years, when China was busy building roads and highways, etc. Not sure this will move as quickly as it might have, during the development of China. Not expensive, but doesn’t show up in his radar to own.

Last year they took a 15% hit in revenues, and this year, revenues are only expected to climb 1%. Yet the stock is up 25% in the last 6 months or so. If you own, consider lightening up. He doesn’t care for this one because it is quite sensitive to commodity prices and what is going on in China.

Deere (DE-N) or Caterpillar (CAT-N) for at least a 5 year hold? His instincts are saying Deere because it is in the food area. This one depends more on a worldwide pickup in construction, so it might be a slightly better pick at this point, but long-term he would stick with Deere.

Has been sideways on a 5 year chart. He would prefer names in the consumer space.

Basically 2 big drivers for them. 1) Construction, which hasn’t picked up until recently and 2) mining which has been experiencing a boom for the last 5-10 years and is slowing down right now. These 2 forces are offsetting somewhat so this is looking to be a transitional year. In the short term he would stay out but over time you will see construction in the US really pick up.