Caterpillar (CAT) 2014 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 11-40% return on equity over the past ten years growing earnings and dividends at a 10-19% annual rate.  While the CAT’s profitability is economically sensitive, longer term the company should prosper as a result of:

(1) strict cost controls.

(2) improving growth in end markets,

(3) stock buy backs.

 Negatives

            (1) declining backlog,

            (2) an ongoing inventory correction.

CAT is rated A+ by Value Line, has larger than desirable debt to equity ratio of 61% and its stock yields 2.5%. 

   Statistical Summary

                  Stock      Dividend        Payout      # Increases  

                  Yield      Growth Rate     Ratio       Since 2004

CAT          2.5%            5%             35%              10

Ind Ave      1.7               4                16                 NA 

                Debt/                        EPS Down       Net        Value Line

                Equity         ROE      Since 2004      Margin       Rating

CAT          61%           22%           2                  8%           A+

Ind Ave     35               15             NA               7             NA

     Chart

            Note: CAT stock made good progress off its March 2009 low, surpassing the downtrend off its May 2008 high (straight red line) and the November 2008 trading high (green line).  Long term the stock is in an uptrend (blue lines).  Intermediate term it is in a trading range (purple lines).  Short term it is an uptrend (brown lines).  The wiggly red line is the 50 day moving average.  The High Yield Portfolio owns a 50% position in CAT, having Sold Half in early 2011.  The upper boundary of its Buy Value Range is $36; the lower boundary of its Sell Half Range is $114.

   

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

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