July 21, 2009
Caterpillar Inc. (CAT) is more than just machinery (and engines) essential to building projects familiar to anybody who drives past a highway under construction. They also have a financial products segment (which consists primarily of Caterpillar Financial Services Corporation, Caterpillar Insurance Holdings, Caterpillar Power Ventures Corporation and subsidiaries.) As such, this iconic company deals with the design, manufacture, marketing and sales of construction, mining and forestry machinery and engines. In April 2008 Caterpillar let go of market research and customer analytics operations and acquired Lovat Inc., a global manufacturer of tunnel boring machines (think railway, road, sewer, water main, mine access, high voltage cable, and telecomm tunnels.)
As the economy begins turning around, construction starts either with demolition or heavy equipment digging in and moving dirt. Long before electricians, roofers, and plumbers are called in we start making the ground ready. Smaller enterprises, such as Deere and/or Cummins have weathered the past year more easily in the estimation of market analysts and traders.
CAT was trading under $22/share when much of the market struggled in early March, considerably down from the nearly $76 the stock commanded in July 2008 before the reality of the credit and mortgage crisis took hold of both the public interest and the traders sentiments. The company laid off 2200 workers later that month, mostly in Illinois. Stock price trends reflect “collective opinion” within the investment community, and somewhat surprisingly the news didn’t drive CAT shares even lower. The 50 day Moving Average and the 200 day Moving Average are trending “bearishly” lower, but a lot hinges on earnings reports due out later today. Other technical indicators, such as the Chart pattern, complete a “mixed” outlook – as is true for much of the economy. Here, then, is an equity tied to the most fundamental aspects of recovery – putting American workers back on the job.
With $22.1 billion in market capitalization, CAT, a Mid-Cap stock, represents the challenges facing the Construction and Agricultural Machinery industry. CAT comprises half of the Capital Goods sector of the ERRI fund, and 4.87% of the entire fund.; it’s arguably more key to the public perception of ecomonic recovery than almost any other non-banking stock. (While the other capital goods stock, Honeywell, is also a household name and has been looking relatively solid compared to much of the Defense/Aerospace industry over the past 12-18 months, CAT has been hurting. Even the President sees Caterpillar as something of a bellwether.)
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