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Caterpillar Investors Waiting for 'Buy' Signal

Stocks in this article: CAT CMI ITW BUCY MPDAX DE

BOSTON ( TheStreet) -- Caterpillar (CAT) has generated massive sales of construction equipment across the world, acquisitions are boosting earnings and profit margins are at their peak. The company's stock has surged 64% in the past year.

And yet Oliver Pursche, manager of the GMG Defensive Beta Fund (MPDAX), which counts Caterpillar as one of its largest holdings, isn't increasing his position in the industrial giant, which will release first-quarter earnings results Friday. At least, not yet.

For a stock that has jumped 20% already this year, his view shouldn't be all that surprising to Caterpillar bulls.

"The stock has done phenomenally well over the last couple of years," Pursche said Wednesday from his office in Suffern, N.Y. "But we would rate this stock as a 'hold' based on valuation. We are still bullish on it. But as a result of that strong price appreciation, we would look for very strong, bullish forward-looking statements from Caterpillar in order for us to determine that we want to add to the position."

Caterpillar is expected to report first-quarter earnings of $1.31 a share on revenue of about $11.7 billion before the opening bell Friday. That compares to 36 cents a share and sales of $8.3 billion a year earlier.

Pursche maintains a focus on large-cap multinationals, which are growing businesses aggressively in emerging markets and demonstrate strong free cash flow. Caterpillar fits these requirements perfectly, making it the second-largest equity position in the GMG Defensive Beta Fund, according to Morningstar. Pursche has about $500 million in assets under management at his firm and about $20 million in the fund.

"We strongly believe in global infrastructure expansion and rebuilding, and Caterpillar is in a terrific space for that," Pursche says. "We think there will be continued wealth growth in emerging market nations, which is going to drive further demand in housing and road infrastructure. Specific to Caterpillar, they've done a very good job at managing their business, cutting some of their operating costs."

Pursche says he doubts anything the company says in its earnings release or subsequent conference call will persuade him to dump shares. Instead, he's looking to CEO Douglas Oberhelman to speak about Caterpillar's move into emerging markets.

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