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
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Best, Worst of 2013: Northrop Grumman vs Caterpillar



However, not all industrial stocks performed as expected in 2013. One of the most reliable stocks ever for going up more in a bull market and down more in a bear market is Caterpillar, which is actually down 4.8% for the year. CAT's 41% lag behind XLI is its second-worse, one-year relative performance since XLI started trading in 1998. But it should be noted that since XLI's inception CAT has more than doubled XLI's returns.

The big driver behind CAT's struggles this year has been its perceived reliance on China and other emerging markets. For years, China has been modernizing its cities and infrastructure, which requires natural resources and big equipment to move those resources.

As China's economy has struggled to maintain its torrid growth rate in the last couple of years, its demand for resources has slowed -- which means fewer pieces of yellow Caterpillar equipment being purchased. Hence there has been a long string of negative earnings and revenue surprises. Going forward, both earnings and revenues are only expected to grow by single digits in 2014.

The slowdown in China is a major contributing factor to the bearish case for CAT. Last summer, well regarded short-seller Jim Chanos presented his thesis for shorting CAT based on the China slowdown during the Delivering Alpha Conference.

Coming off of the March 2009 low, CAT rallied 205% in two years, well ahead of XLI and NOC because it still benefited from the China effect and an oversold bounce in the broad U.S. equity market. There are still plenty of emerging and frontier countries that over the course of the next 10 years will need to modernize their infrastructures similar to the way China has even if on a smaller scale, like most of Latin America, Africa and smaller Asian countries, and as that happens Caterpillar will benefit and its stock price could put in a repeat performance of 2009-2011.

For now, though, CAT would seem to have nothing going for it right now. It is in the wrong business relying on the wrong country but that could make it a good contrarian investment for a patient investor.

At the time of publication the author had no position in any of the stocks mentioned.

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

2 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

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
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, 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
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

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

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
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!
DOW 16,943.81 +28.74 0.17%
S&P 500 1,967.57 +2.89 0.15%
NASDAQ 4,415.49 +19.2860 0.44%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

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