This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Why CAT Looks Like a 'Dog'

NEW YORK ( TheStreet) -- If you drink water from the same fountain as legendary investor David Tepper (who you can read about in Business Insider) by all means load up on shares of Caterpillar ( CAT).

However, if you are a traditional investor who is accumulating equities to build wealth over a long-term horizon, perhaps you would be wise to understand the asymmetry that exists in realistic upside and downside scenarios for CAT common shares. Check out this article in BusinessWeek. for more on that.

In my view, the traded value of CAT common shares depends much more on how successful central banks are in keeping benchmark interest rates suppressed than on whether CAT management succeeds in growing revenues, net income, and "free cash flow."

De-Constructing the Bull Case for Owning Shares of Caterpillar





At headline level, investors who own CAT common shares expect to profit as a growth trajectory takes firmer shape globally and especially in rising economies.

One of 30 components in the Dow-Jones Industrial Average since May 1991, CAT seems to be a solid, globally accepted brand that should prosper even through the cloudy future as it has done for decades since 1925. The equipment it manufactures and sells moves and powers the world.


If you do not already own CAT common shares, is this a good time to jump on board? CAT Chart CAT data by YCharts

Technical analysis might suggest that there is little downside in CAT and realistic hope for regaining three-digit pricing based on levels attained in the recent past.

Furthermore, CAT prides itself on paying a stream of cash dividends that has risen consistently for years. The last four quarterly dividends totaled $2.08 per share and management likely will soon boost the quarterly dividend even higher.

With a current yield around 2.4 % and likely headed upward, why not sock some dead cash into purring CAT shares?


A Structural Case Against Owning CAT Now

Extraordinary measures taken by major governments and central banks have artificially supported economic activity and simply deferred the inevitable day of reckoning when global capacity will be "right-sized" closer to intrinsic ("unfinanced") demand for the suite of products and services offered by CAT.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
CAT $79.67 0.00%
GM $37.31 0.00%
GE $24.86 0.00%
AAPL $123.25 0.00%
FB $83.30 0.00%

Markets

DOW 17,712.66 +34.43 0.19%
S&P 500 2,061.02 +4.87 0.24%
NASDAQ 4,891.2190 +27.8570 0.57%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs