July 21, 2009

Why is Caterpillar in the ERRI?

Posted in economic indicator, economic recovery, ERRI, foreclosure crisis, Obama administration, U.S. Economy tagged , , , , at 5:37 am by realitytax

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.)

Disclaimer: Readers are advised that the ideas, materials, and opinions contained herein should be used solely for informational purposes. The author does not purport to tell or suggest investment securities that should be bought or sold. Investors should always conduct their own research and due diligence and obtain professional advice before making any investment decision.Neither the author nor realitytax shall be be liable for any loss or damage caused by a reader’s reliance on information obtained in any posts, newsletters, special reports, email correspondence, or comments on the web site. The author is not a registered investment advisor or broker/dealer. The information contained herein does not constitute a representation by the publisher or a solicitation for the purchase (or sale) of securities. Opinions and analyses are based on sources believed to be reliable and are written in good faith, but no representation or warranty is made as to their accuracy or completeness, and we are not liable for errors or omissions. All such information should be independently verified with the companies mentioned. The author(s) receives no compensation of any kind from any companies that may be mentioned on this web site. Any opinions expressed are subject to change without notice. Owners, employees and writers may hold positions in the securities that are discussed; the intent is neither to suggest investment choices/strategies nor to influence market conditions, but rather to divulge methodology for inclusion of equities and sectors in the Economic Recovery Reality Index [ERRI]


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