The market has been up all morning and Caterpillar Inc. (NYSE: CAT) has been down. The big cat has been crushed like so many other large industrial companies in the last 18 months, that it probably doesn't know what a good day is.At the rate they have been slashing payroll and laying off workers in spurts, a good day might be when there is nothing to report.
I was searching around for stocks that might be down because I am still looking to take advantage of the fear in the market place by doing naked puts and CAT popped up. However, after some further review I decided to discuss the company because I started thinking this stock might be priced right or close to becoming a real buying opportunity.
The stock has been trading just pennies over $26, which is far closer to its 52 week low of $21.71 than to its high of $85.96. The following chart illustrates the stock's journey. I selected a chart that goes back 22 years. The $26 figure is lower than depicted.
CAT has a trailing P/E ratio of 4.66 and a forward P/E ratio of 12. This means that analysts are estimating the stock price will fall another 61%, or the earnings will, or some combination of that scenario. I have to ask myself and my readers if this is rational given the news that housing starts surged 22% in February and that the impending stimulus funding has a heavy focus on infrastructure spending?
There is more to this story. CAT has a PEG ratio of 0.97, a price-to-sales ratio of 0.55, and is paying a trailing yield of 7.23%. What is not to like? The long term debt is higher than I normally would be happy with and the book value of is high at 4.4, so I am not jumping in with both feet yet. I have added it to my watch list and I am looking at trading options to allow me to pocket some cash and pick CAT up even cheaper.
I am surprised that the stock is not up today on the housing news but there is always more to the story and today CAT said it would lay off another 2500 workers in 3 states. It is still trying to "right size" the company. When they get there and the economy reverses course, in time, I think the stock price will jump significantly. Some think that might only be months away. Others think that might be two years away, but even the longer time frame makes this an enticing stock to me.
Update: The stock made a late recovery finishing the day at $26.83, up $0.41, or 1.55%.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I do not own shares of CAT, but I do have an open option order today.
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Reader Comments (Page 1 of 1)
3-17-2009 @ 9:25PM
william lindblad said...
Well, interesting?
Cat is multinational and therefore, part of the international market. Heavy equipment is built to last and there are plenty of people making it. It is going to take a lot more than the NAR's dubious statistics to make a flurry in this area. If you want big machines, John Deere is a better bet.
Solid company, but they have a lot of competition and this market is going to remain slow. The Pres has the "buy American" part into the stim package but this has shades of the McKinley T&T, which became a swiss cheese with a hole for every special interest. Given world trade (and trade agreements), CAT is going to have a rough road for a few years.
Volvo trucks just laid off 50% - Volvo trucks are not located in Sweden. At the rate things are going a Belarus, all 1920's of it, are going to start looking good. Don't know, but perhaps Mahindra might see this as an opportunity.
3-17-2009 @ 10:04PM
hoppef2 said...
The upper managment let some guys go back during XMAS now they have a morale issue and they are making the guys in parts buy coffee out of a vending machine. They also wont be making engines for Paccar anymore too many complaints with warranty etc. They are focusing on parts and rentals. Hopefully with the new president things will pick up! There are a lot of big construction jobs out there coming soon!!!!