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Caterpillar Inc. (NYSE:CAT) stock news and links

Archive for January, 2009

No closing wrapup today…

I’ve got other obligations this afternoon but you can always stop in on FinViz to get the latest Cat droppings.

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Tom Mangan posted at 12:41 pm January 30th, 2009 |

Short-term challenge for Caterpillar’s stock

For those thinking Caterpillar screams “buy me” today, take a look at this chart of Cat’s trading range compared to the S&P 500 for the past 12 months:

Cat vs. S&P 500 trading channels

Note that since the bear marked kicked into high gear last summer, the S&P 500 has barely budged above the center of its RSI trading range. Meanwhile, Caterpillar is at the bottom of its RSI range today.

At some point the S&P 500 will rocket back to the top of its range and take everybody along for the ride. What strikes me as more likely in the short run, though, is that as the market digests more bad news, it grinds back toward the bottom of its range, making it highly difficult for individual shares to get much traction (especially ones where the immediate outlook is so bleak, like construction and machinery.)

Disclosure: I own no Cat shares.

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Tom Mangan posted at 10:29 am January 30th, 2009 |

When will Caterpillar become a “buy” again?

Today we’ll consider ourselves lucky if support on Caterpillar holds at around $30 a share, and it could very well go lower if earnings keep pushing the broader indexes down. Cat’s in no position to fight the crowds these days and besides, unless you’re a member of the whips-and-chains crowd you probable don’t want to be betting up when the trend’s heading down.

Furthermore, Cat had record sales and earnings for the first three quarters of 2008, which means all the year-over-over year profit/revenue/cash flow comparisons will be terrible in 2009. Cat’s dividend yield will go up as the price goes down, so there may be something to be said for picking up the shares on the cheap, keeping in mind they could get still cheaper.

The short-term story for Cat is all suffering, but if like Cubs fans everywhere you can wait till next year, things might just turn around. says construction spending outside the United States is about to explode because of infrastructure spending totaling $355 billion.

Chris Sleight, editor of International Construciton magazine says, “The potential boost to the global construction industry from fiscal stimulus packages over the next two years could be enormous. US$ 355 billion is greater than the GDP of many medium-sized countries, and in terms of construction it is greater than the size of the German market – the fourth biggest market in the world.”

He continued, “The key now is for the spending pledges to translate into real on-the-ground activity. Governments need to make sure their planning and tendering processes are as stream-lined as possible and that there are no bureaucratic obstacles in the way of these plans being effective.”

The total additional spending to shore-up economic growth in 20 major economies is set to exceed US$ 1.9 trillion, of which US$ 795 billion has been ear-marked for construction. Most of this will be spent in 2009 and 2010, however schemes such as Brazil’s housing-focused package will be longer term.

Folks living in places like the United States and Western Europe that have all the highways they need can easily forget that places like China, Africa and South America need massive improvements in their transportation grids. The opportunities to build new roads, airports, dams and other projects in the developing world are tremendous.

Demand for machinery will boost demand for commodities needed to build them, plus commodities needed for actual construction. Right now the mining business is in the tank, but all the money being thrown at infrastructure should juice demand for metals, oil and other commodities whose extraction requires equipment Caterpillar builds (along with all its competitors, of course).

The people who were saying Cat looked great at $45 look like idiots now that it’s at $30. Cat’s business tanked in December and doesn’t look to be getting any better in January and probably won’t for the rest of the year. But the prospects for next year — when earnings reports have a chance to show gains again — seem much better.

Disclosure: I own no shares of Cat.

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Tom Mangan posted at 9:55 am January 30th, 2009 |

Caterpillar now on Goldman Sachs “conviction sell” list

One of the reasons Caterpillar’s getting pounded this morning is Goldman Sachs adding it to a “conviction sell” list. What they mean:

“We see an absence of catalysts near term, with Caterpillar earnings per share likely to bottom later (2010) than most industrials (2009) given high exposure to commodity producer capex,” Goldman analysts wrote in a note.

The analysts also said the company’s 2009 earnings outlook of $2.50 a share was “risky.” Goldman expects $2 a share. However, CAT Financial’s outlook of a 50 percent drop in earnings is reasonable, Goldman said, and added that the downturn may encourage the financial unit to de-lever.

Have to say I’m a bit dubious about the $2.50 EPS number myself; it felt rather arbitrary.

(Homework assignment: Find out how much leverage Cat Financial is carrying.)

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Tom Mangan posted at 8:01 am January 30th, 2009 |

More Caterpillar layoffs at three Illinois plants

Another 2,110 production workers will be out the door in East Peoria, Aurora and Decatur on April 13. These are on top of the job cuts announced Monday with the earnings report. The breakout, plus management and staff cuts included in Monday’s count:

  • Aurora: 500 production; 96 management, staff & support
  • Decatur: 1,026 production; 146 all the rest
  • East Peoria: 584 production, 174 all the rest

Cat builds wheel loaders and hydraulic excavators in Aurora; off-highway trucks, motor graders and wheel tractor scrapers in Decatur; and track-type tractors and pipelayers in East Peoria.

Sorry for not posting this sooner; I’m still catching up on the sleep I lost Monday to blog the earnings release (4 a.m. on the East Coast, and I work second shift).

UPDATE: A forum at says the third shift at the Mossville plant was told their layoff started immediately rather than at the end of February, the previous plan.

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Tom Mangan posted at 7:19 am January 30th, 2009 |

Today’s close: Down 3.48%

Caterpillar set a dreaded 52-week low today as dismal news on durable goods, new home sales and unemployment blistered the bulls. Full quote at Yahoo Finance.

Broader markets took the news about as expected: Dow, down 2.7%; Nasdaq, down 3.24%; S&P 500, down, 3.31%. Today’s wrap-up at Market Watch.

Cat’s volume of 14.4 million shares was notch above normal, but not really enough to tell us much. Selling inched the support level down but did not blast through it, which seems at least borderline positive. Still waiting for that Obama bounce everybody promised.

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Tom Mangan posted at 1:19 pm January 29th, 2009 |

Lessons in leverage, an update

My fake portfolio with 100 shares of Caterpillar stock bought for $1,000 down and the rest on margin is now worth less than zero. Nice thing about fake portfolios: no real margin calls!

For new readers: I posted an item in late December explaining how I accidentally created a leveraged stock portfolio by buying 100 shares of Cat at $42.33 but funding it with only $1,000. With $1k of my own (pretend) cash and $3,233 in (pretend) borrowed money, I created a three-to-one leverage ratio, which was tripling my gains in the Santa Claus rally at the end of the year and is now tripling my losses with Cat revisiting its 52-week low.

In real life my broker — from whom I borrowed $3,233 — would’ve had me on the phone hollering “where the hell’s my money?” long before my cash balance ran to zero. But I’m sticking with my charade trade to see how it plays out over the long haul and to remind myself (and the rest of you following along) of the risks of trading on margin.

All professional traders use margin — which is why the prospect of falling interest rates makes the market rally (and why prospects for a rally now are so grim, with interest rates bumping against the zero limit) — but they also hedge their risks with futures, options, credit default swaps and such. They kinda/sorta know what they’re doing (except when they don’t).

My three-to-one margin bet on the stock market looks borderline foolish in the context of this experiment, but if you put 10 percent down on a $100,000 mortgage, you’re using 10-to-1 leverage. If you sell that house two years later for $120,000 you’ve doubled your cash investment. (The difference being that your home’s value will not fluctuate like a stock’s value because a house has inherent value as shelter while a stock is a piece of paper).

Disclosure: I own no real shares of Cat.

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Tom Mangan posted at 11:34 am January 29th, 2009 |

Recession round-up

Trust me, it’ll make you stronger in the long run.

Durable goods orders decline

The 2.6 percent drop was worse than economists had forecast, a Commerce Department report showed today in Washington. Excluding automobiles and aircraft, orders decreased 3.6 percent, also more than anticipated. The Labor Department said separately that the number of Americans collecting jobless benefits soared to a record 4.776 million.

Today’s reports reflect efforts by companies from General Motors Corp. to Caterpillar Inc. to downsize amid a pullback in both domestic spending and demand from overseas. The Federal Reserve yesterday warned that a prolonged global downturn may push the U.S. to the brink of deflation.

“Economic Tsunami” for job seekers

In all, more than 11 million U.S. workers are unemployed, a 48 percent jump from a year ago.

The numbers translate to roughly four job seekers for every one job opening in the United States, according to Heidi Shierholz, an economist at the Economic Policy Institute, a Washington-based think tank.

The grim job picture cuts across nearly every sector, she said. “There are literally millions of workers unemployed with no hope of finding a new job,” she said.

Time magazine checks in on how things are going in Peoria:

Many in Peoria are preparing for the worst. Pierre Serafin, co-owner of UFS, a discount store here, says customer foot traffic has remained steady, although average sales are down 10% from a year ago. Because fewer people are buying homes, there’s less of a need for appliances. The handful of folks buying refrigerators are trading down from stainless steel to the less expensive “stainless mist,” which, Serafin says, “looks almost like stainless steel.”

How many other P-town natives remember when that store was called Unclaimed Freight?

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Tom Mangan posted at 9:26 am January 29th, 2009 |

Caterpillar at center of opposition to “Buy American” language in stimulus bill

Democrats passed the federal stimulus bill yesterday without a single Republican vote. Caterpillar, meanwhile, is trying to talk Congress out of protectionist language designed to prevent U.S. infrastructure dollars from flowing overseas. From today’s Washington Post:

“There is no company that is going to benefit more from the stimulus package than Caterpillar, but I am telling you that by embracing Buy American you are undermining our ability to export U.S. produced products overseas,” said Bill Lane, government affairs director for Caterpillar in Washington. More than half of Caterpillar’s sales — including big-ticket items like construction cranes and land movers — are sold overseas.

“Any student of history will tell you that one of the most significant mistakes of the 1930s is when the U.S. embraced protectionism,” Lane said. “It had a cascading effect that ground world trade almost to a halt, and turned a one-year recession into the Great Depression.”

Just an example from my own experience. I drive a 2006 Honda Element that was built in Ohio by American workers. This car has no nationality, nor do most of the other products bought and sold on this planet. People understandably want trade to produce all winners and no losers, but they might as well try to mint one-sided coins. OK, rant over, back to the headlines.

The New York Times has an informative assessment of how fast the stimulus package, in its current form, can start doing some good. The tax breaks and direct cash aid for extended unemployment and food stamps programs will start helping right away. The aid to states facing crushing deficits will prevent massive layoffs. But what about the infrastructure provisions?

The greatest prospect of delay in spending is on infrastructure. The bill provides $30 billion for highway construction and tens of billions more for other transportation projects, water projects, park renovation, military construction, local housing projects and more.

A Congressional Budget Office analysis found that only 64 percent of the bill’s spending would be completed within 19 months, and spending on construction projects was among the slowest.

If the economic recovery is slow, that timing could work out perfectly, giving the economy a jolt just when faster-acting components are wearing off. But if there is a quicker-than-expected rebound, many of those projects could start just in time to compete with renewed private spending.

Political junkies should keep an eye on what comes next in the Senate. House Republicans who voted against the package obviously expect it to fail badly enough that they can bash Democrats with it in the 2010 elections. The Senate doesn’t have enough Democrats to block a filibuster by Senate Republicans, but the Senate is where the grown-ups live in the U.S. Congress, so they will presumably put the nation’s welfare first (while putting the nation on welfare, essentially) while covering their own hides from responsibility for making the recession worse.

We don’t even want to think about what the markets will do if the stimulus package fails.

I sympathize with the sentiment that reckless debt-chasing got us into this mess and seems unlikely to get us out of it. The critics are all saying “you can’t borrow your way to prosperity,” which sounds sexy but is plainly false. Everybody who took out a mortgage and retired rent-free or bought a car on a loan to get to work and back borrowed his way to prosperity. Any loan you can afford to pay off is not a problem.

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Tom Mangan posted at 9:00 am January 29th, 2009 |

Today’s close: up 2.10%

Caterpillar gapped up a couple percentage points at the open and took a long winter’s nap the rest of the day, drifting downward to close a bit off its high for the day. Full quote at Yahoo Finance.

Financials led the broader markets higher as traders convinced themselves the bad news is all priced in. Dow, up, 2.46%; Nasdaq, up 3.55%; S&P500, up 3.36%. Wrap-up at Market Watch.

Cat’s volume was back to normal at 12.9 million shares. Two small up days in a row feel like a playoff win after what we’ve been through. I’m skeptical of any bull run led by the financials, which got is into this mess and will not get us out, but there’s good cheer in the tech stocks outperforming. That’s at least a semblance of normalcy.

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Tom Mangan posted at 1:18 pm January 28th, 2009 |