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 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 NowExtraordinary 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.
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