Cat Stock Blog

Here’s a nice list of the dividends on Dow Industrials stocks as of Feb. 2. Caterpillar is No. 9; its yield as swelled to 5.45 from 3.85 just since the first of the year. Marc Cortenay, who compiled the list, expects the Dow to sink to 6,000 this year before “laying the foundation for the next major bull market.”

Regular folks are being wooed by high yields on corporate bonds because enticing spreads between corporates and Treasuries. Typically institutional investors buy up nine-tenths of corporate bonds.

Brian Battle, vice president of trading at Performance Trust Capital Partners in Chicago, says investors who want to take the plunge on individual bonds should select companies that seem best-positioned for hard times.

He singled out Caterpillar Inc., among others, as a “pretty good credit” despite declining demand for its heavy equipment in a global recession. As of Tuesday, a 10-year Caterpillar corporate bond carried a 6 percent yield — more than double the 2.80 percent yield of a 10-year Treasury.

Things to keep in mind: High yield reflects low prices; low prices reflect low demand; low demand reflects perception of higher risk.

Here’s an e-how article on how to buy corporate bonds.

Another of those “coulda been worse” days. While the rest of the markets took a tentative march into the green, Caterpillar remained stuck in the red, probably because of the lousy Cummins guidance, though there’s some comfort in the shares not having set a new 52-week low. Full quote at Yahoo Finance.

Indexes were all up: Dow, up 1.78%; Nasdaq, up 1.46%; S&P 500, up 1.58%

Cat’s been trading in a narrow band around $30 a share the past couple days and can’t seem to make up its mind where it wants to go, which seems odd in light of the 17.8 million shares traded. I have no sense of where things might be going, which is probably healthy because my senses tend to lie.

I never imaged anybody’d have enough nerve to steal anything as large as a bulldozer, backhoe or excavator, but this piece in Compact Equipment magazine outlines the many ways equipment gets stolen — to the tune of $1 billion a year — and how to prevent thefts. One vignette about a contractor who put a “curfew” on his machinery to prevent anyone from using it without his permission:

Consider the case of a Tracy, Calif., contractor who got a call on his cell phone late one Sunday night indicating that somebody was trying to start his Caterpillar backhoe during the curfew. Upon arriving at his yard after he remotely confirmed the backhoe’s location via the online satellite image in the software, the contractor found his guard dogs poisoned but all his equipment intact. Unfortunately the neighboring contractor’s yard was also broken into and the identical model backhoe, which was unprotected, was stolen.

Organized crime rings are the major players and they will case multiple jobsites and yards to plot out target A, target B, etc. So when the thieves’ attempt for a quick grab was thwarted by the disabled machine, they simply went for the next available, easier target. By immobilizing the equipment with a curfew, the target was “hardened” and the vandals were deterred. This technique is also very effective in warding off other subcontractors and late night joy riders, who typically end up damaging the equipment, jobsite or themselves.

I read somewhere last month that people were stealing Cat generators in northern California to provide power for illicit marijuana plantations.

Doesn’t take as much nerve as you might suspect to steal a tractor: thieves climb the fence, get the machine running, use it to knock down the fence and load it onto a trailer. Usually on a weekend because nobody’s around the job site.

The threat of theft, however, turns into a selling point for Caterpillar’s high-tech machinery tracking system, which uses GPS to note where machines are running and communications software to tell site operators when machines need maintenance or repairs. It also tells the cops where stolen equipment is (until the crooks learn how to disable it, of course).

Cummins, a key Caterpillar competitor in diesel engines and power systems, reported today that its fourth quarter profit fell 55 percent and it plans to cut its workforce by 6 percent this quarter.

“We are in an extraordinarily challenging period,” Tim
Solso, chairman and chief executive, said in a statement.

Cummins reported a fourth-quarter profit of $89 million, or
45 cents a share, down from $198 million, or $1 a share, a year
earlier.

Sales fell 6 percent to $3.29 billion.

Analysts on average expected a profit of 41 cents a share,
according to Reuters Estimates.

Layoffs should total about 800, the company said.

Cummins Engine earnings release here. From the release:

Cummins expects sales in 2009 to be approximately 20 percent lower than 2008, and to earn an EBIT margin of 6.5 percent of sales, excluding restructuring costs associated with the actions announced in the first quarter of 2009.

Sales are forecast to drop across all business segments, with the largest decline expected to come from the Components and Engine segments. All business segments, however, are expected to be profitable in 2009 and the Company will continue to aggressively reduce costs while investing in key growth opportunities.

Well, they’re keeping their chins up. Noteworthy tidbits from the release: sales to Chrysler for its pickup trucks are down 34 percent and sales to RV manufacturers are off 72 percent.

More on Cummins at Finviz.

Woodward Governor (ticker: wgov) gets a sizable chunk of its engine-controls business from Caterpillar. This story in the Coloradoan (the company’s based in Fort Collins) outlines what the company’s up against:

“We saw the downturn coming,” Gendron said. “The severe reductions at Caterpillar … we didn’t predict that. It gets our attention, and we have to see what that means. Caterpillar is a very large customer.”

The story also notes something we saw in a previous post about a small Cat supplier in Michigan: people are getting more business building wind-power systems.

Can’t help wondering how long before we hear about Cat getting in on the wind-power act. (Note, it does have a wind-powered plant in Northern Ireland.)

Like we needed proof a bear market is a bull going backward: Caterpillar set a fresh 52-week low out of the gate Monday morning, but rebounded a bit on news that the manufacturing sector’s performance in January was a bit less skunklike than it was in December. Full quote at Yahoo Finance.

The indexes were mixed: Dow, down 0.80%; Nasdaq, up 1.22%; S&P 500, down 0.08%. Wrap-up at Market Watch.

Cat’s volume at 16.7 million shares remains about 30 percent above average, which is not encouraging on a down day. Buyers keep dipping their toes in the water at $30 a share; I think it’ll be up to the rest of the market to give them enough confidence to dive back in.

The New York Times has a story that must have mining companies’ mouths watering: the world’s largest reserves of lithium — a key ingredient in batteries that could power hybrid cars — lie beneath a salt flat in a remote corner of Bolivia, whose current president is Evo Morales, a leftist pal of Venezuela’s Hugo Chavez, who is bound and determined to make sure Bolivians are the primary beneficiaries of all this metal. I was counting the paragraphs till somebody denounced evil imperialists, and I wasn’t disappointed:

“The previous imperialist model of exploitation of our natural resources will never be repeated in Bolivia,” said Saúl Villegas, head of evaporates, a division in Comibol that oversees lithium extraction. “Maybe there could be the possibility of foreigners accepted as minority partners, or better yet, as our clients.”

Uh, Saúl, no matter what you do, if you mine the lithium, you’re going to have to sell it to somebody else. The lesson of history is that attempting to gore the capitalist pig just encourages said pig to feed at somebody else’s trough.

The story summarizes all the issues at stake between economically poor countries that are resource rich and would like to become economically prosperous without having to cut deals that let somebody else rake in all the profits. Could Bolivia become a model for building an industry that makes the nation and its people wealthier? Perhaps, but the fact that people making empty denunciations of imperialism are running things makes me skeptical.

(Nice thing from Caterpillar’s perspective: no matter who does the digging, they’re gonna need shovels).

The Institute for Supply Management’s Manufacturing Index came in at 35.6 (anything under 50 means manufacturing is contracting), but that’s an improvement on the 32.8 notched in December. The index has been sub-50 for 12 months. One interesting tidbit from ISM’s release:

Commodities Up in Price

Corrugated Containers*; Electrical Components; Polypropylene*; and Steel* (2).

Commodities Down in Price

Aluminum (4); Aluminum Extrusions; Copper (6); Corrugated Containers*; Diesel Fuel (6); Gasoline (3); Natural Gas (6); Oil (2); Polyethylene (3); Polypropylene* (4); Scrap Metal (2); Stainless Steel (4); Stainless Steel Products (2); Steel* (5); and Steel — Cold Rolled.
Commodities in Short Supply

No commodities are reported in short supply.

(The asterisk is for stuff that’s going both up and down.)

One bit of borderline-positive news: inventories were not piling up in January.

A nice Washington Post overview that starts with the most obvious question: do we really need a stimulus package? Answer: a qualified yes, though taking on long-term debt for a short-term problem can hurt economic growth down the road. Also:

Where would the jobs be?

5. The Obama administration says that the vast majority — as much as 90 percent of the jobs — would be created in the private sector. The jobs would be heavily weighted to construction and manufacturing, which together would account for almost one-third of the new or saved jobs, according to the administration’s analysis. Both of those sectors have been hit hard by the economic downturn, with the construction industry shedding more than 600,000 jobs in 2008 and the nation losing nearly 800,000 manufacturing jobs in the same time period. The administration estimates that more than 600,000 of the jobs saved or created under the stimulus plan would be in retail and 500,000 would be in leisure and hospitality industries.

African Americans, Hispanics and workers with lower levels of education, who have suffered most during the downturn, would see the most substantial benefits. The Obama administration estimates that more than 40 percent of the new jobs would go to women.

Ah, jobs for women and minorities, no wonder the Republicans hate it so much (sorry, couldn’t resist).