Caterpillar (CAT)

He's watching it. On their conference call Q1 there was a major misunderstanding about the guidance they gave; no, they haven't hit their peak for the year. Rather they reached the high point on their margin percentage. The street reacted negatively and sold. It was astonishing. A fine company, but he's not sure this is the best company in this space and there's a lot of competition here.

A big name but has a lot of debt. Big US company. A perfect target for tariffs. Trades at reach valuations. He would be cautious.

Just bought it this month. The global economy is accelerating, and sales are doing well. There is a recovery in commodity prices and that is helping them. Trading at 14 times earnings with a 20% growth rate. (Analysts’ price target is $172.32)

Just bought it this month. The global economy is accelerating, and sales are doing well. There is a recovery in commodity prices and that is helping them. Trading at 14 times earnings with a 20% growth rate. (Analysts’ price target is $172.32)

(A Top Pick Feb 13’17, Down 64.73%) He thought it had down legs. Global growth was greater than expected. They restructured so much that their earnings grew. It is still a cyclical industry. He could see being short of this stock.

AAPL-Q vs. CAT-N. CAT-N is machinery and has been a hero. They both really pulled back. CAT-N had a 22% earnings beat last quarter. AAPL-Q is really the iPhone X or 10 story. They missed on units. It is not a lost leader but the concept applies. This will be used like the iPad with augmented reality. You are in a very expensive period of time – an air pocket. AAPL-Q is a great company, however.

(A Top Pick Nov 16/16. Down 52%.) *Short* At the time, this was trading at over 30 times earnings, with basically 3 years of down earnings. It was trading at a ridiculously high multiple. They missed on the past 5 quarters, and the stock had run up on the idea that Donald Trump was going to build the wall using thousands of Caterpillar tractors. He underestimated the global recovery, which helped sales. On top of that, they operationally improved their margins to such a degree that earnings recovery has grown through the estimates in the last three quarters. Has shorted again recently because, although a good story, it is trading at 25X what he thinks will be their peak earnings.

This was basically left for dead and everybody was very negative on it. It hit a low in late January 2016, and has rebounded nicely. It was a long, long decline for the better part of 2 years, and then finally started to turn around, and it is breaking out again. This is its first break-out in 6 years. This is probably a pretty positive thing for everybody in the world, because it means very, very hard-core resources and commodities are getting moved around.

It has done well through a difficult period. 80% of the revenue from that sector was just replacement parts. This equipment wears out and has to be replaced and maintained. It has the fastest earnings revisions of any S&P company. (Analysts’ target: $125.00).

(A Top Pick June 13/16. Down 57%.) *Short* He closed out the Short on November 15. Overall, they have done really well, and certainly defied many people who thought a Short was a good idea.

Relative to what they’ve been through, this has really done well. 75% of revenues are global and they are in over 180 countries. Have had a few very tough years from an environment perspective, and have held up very well. Although things are turning around, he would not be a buyer. A lot of their business is in emerging market countries where brand isn’t as important as price, and their main competitor is much cheaper. The stock is way too expensive at around 30X PE.

Things are slowly improving post- the election. It is one of the highest quality players in this area.

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.