Caterpillar (CAT-N)

They report Wednesday. Benefits from Joe Biden's infrastructure bill and has plenty of projects to build ahead.

The former CEO was good, but no longer running the company. However, shares are not expensive now, -18% this year. That said, it's not the time to buy this (could fall further).

Rough go recently. About 50% of production is domestic to the US. 35% of its business is recurring service revenue, encouraging. Questions around international business. If recession and tariffs are permanent, expect trouble. 

If those clouds dissipate, this could be a good entry point. US administration has changed, but infrastructure renewal needs remain strong. What you could do is buy this, but barbell it with more defensive areas such as telcos, utilities, consumer staples.

Wait until the CEO speaks at the next quarter, given the very uncertain macro environment.

CAT is $165B market cap, 17X earnings, 1.62% yield, 6.96% five year dividend growth, down 4% YTD, debt/cash flow about 3X, forward growth about 10%. DE is $135B, 25X earnings, 1.30% yield, 14.68% dividend growth, 5X debt/cash flow, forward growth 15%. We would consider both HOLDS today. While good companies, they will be vulnerable in a global economic decline, as both have been in prior cycles. Automation/AI will help margins, but this will take some time to show up in the numbers. Mining expansions (CAT) and weak spending (DE) will likely mean less-than-robust growth and/or weak sentiment for a period of time. 
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It reports Thursday, but decide after you hear the conference call so you can learn their future. CAT is no longer cyclical, but a secular grower due to a CEO pushing CAT into consistent end markets.

Higher highs so far, and we're testing the last low. Overall trend is good. He's still buying, has done 2 legs of 2% each so far. Yield is 1.5%.

Note that if the market turns down in a big way this will be one of its victims, as industrials will be one of the first to fall. 

Active in over 190 countries. Infrastructure spending should increase due to new US administration. Tax cuts, deregulation, and trade policies should also help. Stimulus in China might be of benefit, as might Trump's threats to DE. Yield is 1.4%.

Now has broken above previous resistance. Pretty good trend of higher highs and higher lows since late 2022.

They report Wednesday. People want to know about their inventory. They will talk about the data centre. The company is doing well. Is up $60 from September lows. It's run too much. He likes it though.

He sold this before. This is expensive and is overvalued.

Likes it. Trading right at 200-day MA, so it's corrected down to an interesting level. 15x forward PE, growth rate is high single digits to low doubles.

China's always in the back of his mind, as it's such a big economy and affects so many different companies. Revenue from China is 18%, North America 52%, and Europe 20%. His base case for NA remains a soft landing, no recession.

CAT was a core holding until today's economic data showing a weaker than expected job market, adding to other weak data. So, he sold CAT. The economy is slowing. Also, he expects tech to lead the market for the coming 2-3 years.

He made a killing off this, but sold it too soon. Don't gamble with their quarter, but it's still a cheap stock that pays a decent dividend. Sell a bit and let the rest run.