Caterpillar (CAT)

Backlog fell at about 20% late last fall. That was an indication that things were slowing. He had been lowering his exposure to industrials and he sold his holdings. Great company and well managed but he felt he should get out. If China starts to come back on the mining and earthmoving sides then the stock should do well.

(Market Call Minute) Mining is failing a little but hopes to own it in the future.

This is a stock that will benefit from the global trends of the emerging markets with infrastructure and urbanization. However, for the time being, he is out of this one due to the slowdown in emerging markets. He is seeing some of the global data points getting a little bit better but not ready to go back in yet. Just lowered their guidance for 2012 full year. Trading below the 200 day moving average. (See Top Picks.)

Trades at about 9X earnings with about a 2% dividend yield. Inventory levels have gone up with their dealers indicating a weaker demand for their products. Also, weak in regions such as mining. What had driven the stock up was mining and construction in China. Thinks the stock probably languishes here and trades between $70 and $90. Doesn’t think you will get a much larger move on the story. He would buy it at $70 unless you saw China really pick up again.

Stock hasn’t done well in the last 4 or 5 months because of concerns about China and their overall Asian business. Stock sold off again on news that in 2015 they lowered their earnings forecast to $12-$18 but that just provides a great entry point into a great company. If they earn the midpoint of $15 and trade at 10X earnings, that is a 22% return for each year for 3 years. 2.5% yield.

Looking at it but hasn’t jumped yet. Sees a 19% total return over the next year. Forward earnings are 9.5% versus a forward PE ratio of Standard and Poor of 13. In the short term, they have some inventory problems in China, which could take a couple of quarters to work through. Business is fundamentally okay.

Stimulus always gets all industrials, cyclicals and commodities going again so depending on how long they can continue the stimulus will be the determining factor for this company. Trading at 7X earnings. If there is money going to pour into the infrastructure, this company will continue to trundle along and do well. His concern is that earnings have been in decline and there is more of a deceleration going on in the 3^rd quarter so he would wait until there is a dip in the market.

Long-term, he loves this one. One of the best plays. There are 3 themes in the world coming from developing markets including 1) agriculture 2) infrastructure and 3) consumer spending. This one is a top name in construction and infrastructure space. He just got out of this one but will probably get back in when things look a little bit better.

(Market Call Minute.) Globally there is still great growth in their core businesses. Valuation is a little excessive but has come down recently.

Sees this going back to $100 or so in the next few years. A survey has indicated a number of companies will be increasing their CapX programs.