Hey, Good Luck with that Caterpillar Chief!
In short, I am reiterating the avoid call made on Caterpillar (CAT) on October 5, 2012 (as seen at www.decodingwallst.com). The bulls will likely point to the guidance cut being “kitchen sink” and that in turn, makes the valuation “compelling.” Good luck with that, as we have a global multinational big ticket product seller telling us there is currently too much inventory of its product in the channel plus that being a risk in the early part of 2013 amid a cautious view on worldwide economic growth. To get constructive on a Caterpillar, we would need to see more than just slight indications of bottoming China macro trends, continued life in EU industrial production, and a U.S. housing market that keeps on barreling forward in advance of GDP growth that leads to investment in new machines (tall order to expect the latter two points). For now, it's market sentiment (globe is turning the corner) versus reality (Caterpillar's trends are seriously lagging any of those corner turning effects). Realty reigns supreme today.
Checklist: Why You Don't Buy Caterpillar
•Working through excess inventory is a process that tends to take longer than forecasted, and it places pressure on profit margins. Hence, there is uncertainty regarding the company's new guidance range.
•Company sounded more cautious on future capex spending, and that calls into question a strengthening in the fundamental story as outlined for the second half of 2013.
•Company basically stated that global easing efforts by central banks are not working, and there could be no assurance they will help to any substantial degree anytime soon.
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