Sunday, June 10, 2012

Caterpillar (CAT) 2012 Review

Caterpillar is the world’s largest producer of earth moving equipment serving the road building, mining, logging, agriculture, petroleum and general construction industries. 

The company has earned an 11-30% return on equity over the past ten years growing earnings and dividends at a 9-10% annual rate. While the recession had significant impact on the company’s profitability, CAT performance has rebounded markedly. Longer term the company should continue to prosper as a result of:

(1) despite sluggish global economic growth, backlog continues to climb,

(2) the recent acquisition of Bucyrus Int’l positions the company as the leading global manufacturer of original mining equipment company.

(3) acquisitions,

(4) a major ramp up in production capacity.


(1) the potential impact of slowing economies in Europe and China,

(2) rising costs across the board.

CAT is rated A+ by Value Line, has larger than desirable debt to equity ratio of 66% and its stock yields 1.6%.

Statistical Summary

Stock Yield Dividend Growth Rate Payout Ratio # Increases Since 2002
CAT 1.6% 3% 20% 10
IND 1.6 7 23 NA

Debt/Equity ROE EPS Down Since 2002 Net Margin Value Line Rating
CAT 66% 31% 1 9% A+
IND 81 21 NA 6 NA


Note: CAT stock made dramatic progress off its March 2009 low, quickly surpassing the downtrend off its May 2008 high (red line) and the November 2008 trading high (green line). Long term, CAT is in an uptrend (straight blue lines). Intermediate term, it is in a trading range (purple lines). Short term, it is also in a trading range (brown line is the lower boundary). The wiggly blue line is on balance volume. The High Yield Portfolio owns a 50% position in CAT by virtue having Sold stock on a trading basis at $105 and $113. The upper boundary of its Buy Value Range is $30; the lower boundary of its Sell Half Range is $128.

Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 40 years of investment experience includes institutional portfolio management at Scudder, Stevens and Clark and Bear Stearns. Steve's goal at Strategic Stock Investments is to help other investors build wealth and benefit from the investing lessons he learned the hard way.