Caterpillar (CAT) 2013 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 10-13% annual rate.  While the CAT’s profitability is economically sensitive, longer term the company should prosper as a result of:

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

(2) acquisitions,

(3) a major ramp up in production capacity.

 Negatives

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

            (2) declining backlog,

            (3) an ongoing inventory correction.

CAT is rated A+ by Value Line, has larger than desirable debt to equity ratio of 66% and its stock yields 2.1%. 

   Statistical Summary

                  Stock      Dividend        Payout      # Increases  

                  Yield      Growth Rate     Ratio       Since 2003

CAT          2.1%            4%             22%              10

Ind Ave      1.6               5                22                 NA 

                Debt/                        EPS Down       Net        Value Line

                Equity         ROE      Since 2003      Margin       Rating

CAT          66%           47%           2                  9%           A+

Ind Ave     41               16             NA               7             NA

     Chart

            Note: CAT stock made good progress of its March 2009 low, quickly surpassing the downtrend off its May 2008 high (red line) and the November trading high (green line).  Long term, CAT is in an uptrend (straight blue lines).  Intermediate term it is in a trading range (purple lines).  The wiggly blue line is on balance volume.  The High Yield Portfolio owns a full position in CAT.  The upper boundary of its Buy Value Range is $33; the lower boundary of its Sell Half Range is $106.

http://finance.yahoo.com/q?s=CAT

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