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TheStreet Open House

Caterpillar Is Ready to Roll: Opinion

Factors to Consider

Barchart technical indicators:

  • The short- and mid-term technical indicators are all strengthening.
  • The stock has a 24% Barchart technical buy signal.
  • The stock has a Trend Spotter buy signal.
  • Shares are trading above their 20- and 50-day moving averages and are within $5 of crossing their 100-day moving average.
  • There are six new highs, and the stock is up 3.1% in the last month.
  • The relative strength index is at 59.56%.
  • Barchart.com computes a technical support level at $85.62
  • Shares recently traded at $87.22 with a 50-day moving average of $84.44.

Fundamental factors:

  • Solid following on Wall Street, where 18 firms have assigned 22 analysts to make projections about the stock for clients.
  • Analysts project revenue will increase by 14.4% this year and another 6.5% next year
  • Earnings are estimated to increase by 29.9% this year, 9.40% next year and continue to increase by an annual rate of 17.5% for the next five years.
  • The consensus numbers lead analysts to issue five strong buy, 10 buy, 7 hold and no underperform or sell recommendations to clients.
  • If the numbers hold, analysts predict investors should see a total annual return in the 16% to 20% range over the next five years.
  • The balance sheet gets an A+ rating.
  • TheStreet Ratings gives the stock a B rating.
  • The price-to-earnings ratio of 9.52 is a discount to the market P/E of 14.8.
  • The dividend rate of 2.38% is about 15% of projected earnings and almost the same as the market dividend rate of 2.40%.
  • The company is grounded in the production of power production equipment, all types of heavy construction equipment and the heavy equipment used in mining.
  • Acquisitions in all three of these sectors in the U.S., Germany and China give CAT added production capacity.
  • The company's marketing plan is targeting the growing economies of China and Brazil, and when those countries restart building their power grids and infrastructures CAT will benefit directly.

Investor interest:

  • Most brokerages have a hold or better on this stock, and there are favorable recommendations from Bank of America Securities, Goldman Sachs, Barclays Capital Management, Jefferies, UBS and RBC.
  • Since Jim Cramer gave it a thumbs-up in July, the stock is up about 5.59%
  • Other positive comments came from Tobin Smith, Gary B. Smith and Tom Gayner.
  • I look for individual investor sentiment from the readers of Motley Fool, where 5,922 readers gave the stock a 94% vote of confidence to beat the market

I always compare a stock's performance to its peers, and while CAT was down 0.30% for the past 12 months, Deere (DE) was up 12%, Cummins (CMI) was up 11% and PACCAR (PCAR) was up 9%.

Deere:

  • TheStreet Ratings rates its A-.
  • Revenue is projected to increase by 16.5% this year and 3.7% next year.
  • Earnings estimated to be up 23.8% this year and 4.9% next year.

Cummins:

  • TheStreet Ratings rates it A-.
  • Revenue is projected to increase by 0.5% this year and 7.2% next year.
  • Earnings are expected to increase by 5.7% this year and 10.8% next year.

PACCAR:

  • TheStreet Ratings rates it B.
  • Revenue is projected to increase by 8.1% this year and 5.9% next year.
  • Earnings are expected to be up 14.3% this year and 11.0% next year.

Conclusion

You will see Caterpillar products in almost every picture illustrating the infrastructure growth that is expected in both the developed and emerging economies during the next decade.

As the world economy begins to grow again, mining, power production and distribution, and road construction will be some of the first industries to recover.

These industries will rely on CAT equipment.

I think the stock will reward investors over the next decade, and as soon as I see global leading economic indicators turn positive, CAT will be on my buy list. I think the moving averages and turtle channels have signaled a support level in the stock:

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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