How Will Caterpillar Handle Change?

 A bit of a case study: I remember when Caterpillar moved its head office in Asia from Japan to China. They saw the future and moved from the fast growing market that was Japan, to an even faster growing one in China.

Caterpillar has manufacturing facilities across the globe, several in China. Other main plants exist in Japan, Thailand, Mexico, Brazil and the UK. The very large dozers, off-highway trucks and such are still made in the USA, but that's it. If you're driving along and see a Caterpillar, it's highly unlikely to be a machine made in the USA. To see those, you have to be on a mine site, or very large construction site, well away from the gaze of ordinary folk.

Given the direction things are headed, how is Caterpillar going to service its customers in the US? All of the main manufacturing bases are now behind Donald Trump's paywall. And it gets worse, all of the parts supply comes from China as I understand it. No matter where the machine is made, parts come from China. With huge tariffs in place, it will become impossible for American contractors to repair their equipment. They'll be forced to use after-market knock-off parts suppliers.

Here's a list of Caterpillar locations: https://www.caterpillar.com/en/company/global-footprint.html

These facilities cannot be relocated easily. And why would Caterpillar even want to, seeing as most of their machines exist outside of the US?

And this problem isn't just reserved for the one brand. Imagine the scale of the problem across all industry in America. Basically, the task of relocating is so big, it could wreck the economy.

[ Edit: Caterpillar has applied for various waivers, we'll have to see how this develops]

Portfolio Performance

It's been a year since I posted my portfolio on this blog. As a whole the portfolio is up 54%, with Oshkosh up 107%. Two other favourites of mine, Trinity Industries and Caterpillar are also up more than 70%.  If you want more picks like these then I suggest my readers subscribe to the Stock Tip Hotline.

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Caterpillar Tip

I tipped Caterpillar (NYSE: CAT ) back on Saturday Sept., 26 2015. If you read that post and acted on it the next Monday, then at the Friday April 8 close you'd have a 16.55% return on your investment through capital gain alone (not counting any dividend, one qualifying payment in that period).

(Note: These opinions are information only and do not constitute investment advice. If you need investment advice on these stocks or anything else for that matter, talk to your recognised and professional investment adviser. Better still, do your own research and act on it confident in your own ability.)

Three Industrials Compared

I'm usually loath to do any stock picking publicly as it could be construed as some kind of investment advice, which I never provide. Never. Not even when I'm in a good mood.

Anyway, that said, I thought it useful to compare three industrials. Some you may have heard of, others you may not have. They're all great companies but any investor had better have their eyes wide open when buying shares in them.

1. Caterpillar (NYSE: CAT)

They're a good dividend payer but sales have been lagging which may impact their ability to buy back shares and pay dividends in future. The sector is undergoing a recession, and CAT have begun restructuring - long overdue. 

They're the main brand of construction equipment worldwide, with loyal customers, often said to have CAT yellow coloured blood in their veins. They're strong in infrastructure, so if you think your government is going to spend on roads and bridges, then these guys win from that activity.

Currently their share price is falling, and getting cheaper by the day. They're now in the buy category. You buy and hold these shares, never sell them. Why would you?

2. Joy Global (NYSE:JOY)

I often see Joy Global mentioned alongside CAT. Don't be fooled though, they're not nearly as big and rarely a direct competitor. Joy's main line is underground mining equipment and surface mining equipment such as face shovels and draglines, along with breakers, blast hole drills and assorted items.

They're losing money right now. If you're a risk taker then they're worth a look. Problem is though they're exposed to industries that are cyclical and right now those industries are in the doldrums. This company will take a while to come right.

3. John Deere - Deere & Company (NYSE:DE)

A competitor for CAT and also into Agriculture and Turf. A solid performer but without quite the loyalty of CAT customers, the reputation or the global reach. They're no longer as cheap relative to earnings as CAT which is kind of interesting. They're not as big a dividend payer. Like the other two, sales and earnings are declining.  They're a solid company though, it's hard to imagine you losing your money.

(Note: These opinions constitute information only and do not constitute investment advice. If you need investment advice on these stocks or anything else for that matter, talk to your recognised and professional investment adviser. Better still, do your own research and act on it confident in your own ability.)

Canaries Roosting On The Backhoes

Following on from my earlier post about Caterpillar's troubles, JCB now report a huge plunge in sales.

>>Click Here<<

Quote:-

“In the first six months of the year, the market in Russia has dropped by 70%, Brazil by 36% and China by 47%,” said JCB CEO Graeme Macdonald in a press release.

Yeah, not so good.

Update on Caterpillar. Their share price continues to fall, from a high of just over $106 within the last year, they're now at $69.39 as at the close of trading in New York a few hours ago. That's a drop of about 34%. Caterpillar now fall into the buy territory with a P/E lower than 15. 


(Note: These opinions are information only and do not constitute investment advice. If you need investment advice on these stocks or anything else for that matter, talk to your recognised and professional investment adviser. Better still, do your own research and act on it confident in your own ability.)

Caterpillar Lacklustre

Caterpillar have announced another rejig, this time letting 10,000 staff go in its quest to lower costs and get back on track. Caterpillar look to set a new low in 2016; setting the milestone of four years of lagging sales, unprecedented in its history  >>Link<<

Study the graph to get the picture...

Right now, with the slide ongoing, I'd say Caterpillar are a good buy. Hell, their market cap is under $40 billion.

Caterpillar have challenges ahead for sure, but my bet is they'll handle it. Those challenges include making headway in China. Right now that isn't the case, buyers there, like many other buyers in the emerging market countries, look at price and make their equipment procurement decisions on price alone. In North America, Japan and Western Europe, the whole of life cost is paramount and on that basis Caterpillar win hands down. They're by far the best machine in most categories; but particularly their medium to large Wheel Loaders and Dozers.

Caterpillar have never made a good excavator though and that must be addressed. Hitachi are the standard there and they link up with Deere, so on that front Cat has a real fight on its hands. Caterpillar had better knuckle down and develop strong excavators. Either that or buy someone out who does. They've acquired technology in the past, Perkins comes to mind, so this should not be a problem.

Caterpillar has a strong financing arm, but at the dealer level they need to be more engaged with the end-user. I've stopped counting the number of times contractors in the USA have told me they prefer John Deere due to the local Cat dealer being rude to them. Many Cat dealers in the USA have an attitude of you are privileged to be dealing with them and that has to stop. Consider 60% of Cat sales are in the USA and you can see they have a problem.

Good management can solve any of the challenges I've highlighted. Have the senior managers looked in the mirror and asked themselves if they're up to the task?

(Note: These opinions are information only and do not constitute investment advice. If you need investment advice on these stocks or anything else for that matter, talk to your recognised and professional investment adviser. Better still, do your own research and act on it confident in your own ability.)