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Lenny Dykstra’s favorite fundamentals

Dykstra typically starts his columns with lame references to recent headlines from the world of sports, but if you hang with him, he gets around to sharing lots of sane investment advice, especially for rookie stock-pickers. His latest from notes some of his top fundamental indicators.

The fundamentals that I want to see are price-to-earnings and price-to-book ratios, return on equity, operating and free cash flow generation, and cash on hand to pay liabilities.

Online stock screeners like can clue you in on all these indicators. Lenny likes Caterpillar’s return on investors’ equity.

An important criteria for me is return on equity, which tells us how profitable the company is relative to shareholder equity. I’ll use blue-chip stock IBM as a benchmark. Big Blue has some of the best returns going: Its ROE is 49.4% for the last 12 months.

One of my recent picks — and a previous winner for me — is Caterpillar, which has a solid ROE of 42.4% for the past 12 months.

I’m always dubious of advice from famous people, particularly star athletes, but all I’ve seen from Dykstra to date has had at least a whiff of authority about it.

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Tom Mangan posted at 9:21 am January 13th, 2009 |

2 Responses to 'Lenny Dykstra’s favorite fundamentals'

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  1. Jerry says:

    Dykstra has been a big fan of using deep in the money calls to get leverage on his favorite stocks. Must have worked well in the run up from 2003-2007. I wonder how that worked in 2008?

    Permalink | Posted January 13th, 2009, at 2:04 pm
  2. Tom Mangan says:

    Jerry: Lenny’s column says he’s undefeated, but it’s hard to see how being deep in the money long could help anybody last year.

    Permalink | Posted January 13th, 2009, at 2:21 pm

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