"Steady As She Goes" For Caterpillar

Steady as she goes is the positive news we can hear, particularly in rocky times. Caterpillar CAT CEO Doug Oberhelman was just on CNBC, and he said that the Illinois manufacturer of earth movers and other types of construction and mining equipment continues to see strong demand for its products. This comes despite the rocky past two weeks in the financial markets. Oberhelman said that customers and distributors are saying "steady as she goes", and the company has the "wind blowing at our backs." Orders are strong across the globe, particularly in Asia and Latin America. The company, which completed its acquisition of Bucyrus to compliment its portfolio of mining products, recently raised guidance. Oberhelman said he is "pretty optimistic we'll have a record year." Concerning the recent slide in share price, Oberhelman said, "We have not done anything different from from $112 to today." The record back log the company has been experiencing continues, from June until today. He is worried about the macro economic environment, as everyone should be, but it does not appear to be affecting the company's business, at least for now. Oberhelman, who replaced Jim Owens at Caterpillar, said the company has hired 1,000 people in the United States since July 1, with 300 people being hired just in the month of August. This is due to strong demand around the globe for its products. It has hired 11,000 people since 2010 when the recovery started. He was asked about the jobs situation, and said that he was in Michigan yesterday, and spoke to a distributor, and the company has had over 50 job openings for months for service technicians. These are the types of jobs the country can not fill, not back of lack of demand, but because of lack of talent. Concerning the recent market turmoil, Oberhelman said, "As of today, we have not seen a crack in customers attitude in talking to us." He cautioned that it could turn into a self-fulfilling prophecy if people are not careful. Oberhelman was asked for advice to give to President Obama, as Obama meets with a panel of business leaders today in Washington. Oberhelman stressed having the free trade agreements that are currently sitting in Congress get passed. There is legislation for free trade agreements with Colombia, Panama, and South Korea that need to be passed for Caterpillar to sell its products there freely, without getting heavily taxed. He also mentioned the bevy of regulations being thrown at them, and he asked for a freeze in regulations. He mentioned the country's infrastructure program. The company saw some activity from the infrastructure program as part of the 2009 stimulus program, but it worked better around the world, specifically in China. Oberhelman talked about the length of time to get infrastructure jobs being a problem, as is the port structure, airports, roads in this country. He mentioned the potential for a public private partnership in this country. Caterpillar has fallen sharply from record highs, as the company was perceived to be firing on all cylinders. Since then, shares have moved down towards $87, a forward earnings multiple of just over 9. The comapny is sporting a dividend yield of 2.2%. With the addition of Bucyrus to the company, Caterpillar is poised to continue reaping the benefit of long term growth around the world, particularly in emerging markets. If the U.S. could get on track, especially the U.S. housing sector, the earnings estimates for Caterpillar could be incredibly underestimated. This Caterpillar could take off like a butterfly real soon if that happens. ACTION ITEMS:

Bullish:
Traders who believe that the global economy is not falling off a cliff might want to consider the following trades:

• Look at Caterpillar, as well as competitors like Joy Global JOYG and Deere DE.

• Also consider foreign companies, like CNH CNH, and a small cap distributor of CNH products, Titan Machinery TITN.

Bearish:
Traders who believe that the global economy fell off a cliff in August may consider alternate positions:

• If these companies see a slowdown in orders, earnings estimates and multiples will continue to come down. Short at will.

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