Caterpillar (CAT)

The perceived outlook from investors is that this company is well positioned to benefit from infrastructure spending and the global mining boom. Based on the valuation, it is trading above its historical multiple. A lot of the good news is already built into the share price. This is not an overly cheap stock.

*Short* They’ve missed expectations 14 quarters in a row, 5 down-years of earnings. Management just said expectations were too high for next year. On their website, they are selling used equipment at a discount, rather than new equipment. Doesn’t see where growth is coming from. Dividend yield of 3.13%. (Analysts’ price target is $98.45.)

Had a great deal of difficulty for a number of years. They made an untimely move into mining way back. It was untimely. They went way down because commodity prices and economic growth in China both declined. They just reported okay results recently. It is not a near term story. Future good news it built into the stock price so he would avoid it.

*Short* This has a little over $3 in earnings, and is trading at over 30X forward earnings. They’ve missed earnings in the past couple of quarters. The machinery capital spending business is slowing down because the mining industry has slowed down. They are starting to sell their own used equipment on their website, because there is not as much demand for the new stuff. The price is dropping at a 5% annual rate on what they are selling,. Dividend yield of 3.3%. (Analysts’ price target is $82.17.)

Any time a company is faced with such a tough environment, they always look at costs. Feels that with the rotation from mining into infrastructure, a lot of stocks have really done well. However, we still haven’t seen the bottom of the downturn.

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.