Cat Stock Blog

Last week the market told us Caterpillar’s prospects for cashing in on infrastructure investments were overblown. Nevertheless, a lot of people of a more bullish bent think otherwise. A few examples:

Forbes: “Stocks like Caterpillar, which makes construction machinery and could benefit from a wave of new federal projects, will bear watching.” (This article offers a nice preview of the week to come, by the way).

Taipan Publishing Group: Have you ever seen the movie Brewster’s Millions? It’s a classic 80s comedy in which Richard Pryor, a minor league baseball player, has to blow 30 million dollars in thirty days – without telling anyone why – in order to inherit $300 million more from an eccentric relative. The use-it-or-lose-it provision made me think of Brewster’s Millions… perhaps updated here as Obama’s Trillions. In order to meet the stimulus-driven desires of Washington, the states are going to have to shovel this road-and-bridge cash out the door, pronto. You can almost hear the CEOs of the big construction companies doing a Homer Simpson: Woo-Hoo!” (Nice list of Cat’s companions in the scrum for Obama bucks)

TreeHugger: “A lot of this ethos of infrastructure-equals-jobs comes from the 1930s when you put a lot of guys to work digging ditches and shovelling gravel. And we don’t do that any more.” “You can’t just take unemployed people off the street and have them build roads and overpasses,” he said. Much new funding may well wind up being spent on new machinery rather than hiring, he added. “You might as well just send a cheque to Caterpillar in Illinois.” ” (Also at TreeHugger: Meet Ray LaHood, the Congressman from Caterpillar.“)

Architectural Record: “As drafted, the plan calls for roughly $550 billion in spending and $275 billion in tax cuts over two years. The plan would have a major impact on construction: By Engineering News-Record’s calculation, about $135 billion of the spending portion of the plan would go toward construction. Additionally, construction firms would benefit from the plan’s tax incentives, which includes an extension of a provision that allows small companies to write off the costs of equipment and other capital purchases in the year those items are purchased.” (Excellent overview of the Democrats’ stimulus package at this link)

Fairness obliges me to point out this note about a surge in the volume for Caterpillar put options last week. (Puts are an option to sell a stock at a certain price; they gain value as a stock falls because they theoretically allow a shareholder to sell a stock at an above-market price. Options also are immensely risky because there is always a strong chance of losing your entire bet).