Cautious on CAT (CAT)

Caterpillar (NYSE: CAT) absolutely knocked the cover off the ball this morning, but it might be time to think about scaling out of the name or perhaps going short for a while.

Before you freak out and yell at me, let me explain.

Caterpillar reported fourth quarter earnings of $1.47 on $12.14 billion in revenues, versus the $1.27 earnings per share Wall Street was expecting. Wall Street expected revenues to come in at $11.63 billion.

Caterpillar is showing strength in pre-market trading, up over $2 per share to $98 per share, and I would expect the strength to continue through out the day. Some sympathy plays for today and shortly thereafter are Deere (NYSE: DE), CNH Global (NYSE: CNH) and Titan Machinery (NASDAQ: TITN).

While Caterpillar absolutely knocked the cover off the ball, and 2011 is expected to be an ever better year, with the merger of Bucyrus (NASDAQ: BUCY) expected to close in the first half of this year, now may be the time to think about moving on from CAT, at least for a while.

The company said that rising interest rates in emerging market economies have materially affected the construction industry, none moreso present than in Asia and Australia. I do not believe the U.S. will raise rates anytime before the end of the summer of this year, but if the U.S. is able to produce 3+% growth for the first two quarters of this year, and we see 8~% unemployment in June, expectations will be that the Fed will begin to raise the federal funds rate, which will hurt Caterpillar's business.

The company said it expects to earn $6 per share in 2011, and if you put a 17 or 18 multiple on those earnings, you get a price target of $102-$108 per share. I'm not saying to sell shares now in CAT, but given that the valuation is strongly approaching these price targets, now may be the time to think about looking elsewhere with your investment dollars.

Disclosure: no position in names mentioned