Epiphany Investing

Searching Out the Optimal Portfolio of “Revelation” Stocks

Adding to Caterpillar - Now at 4-Year Lows (CAT)

Posted on | October 15, 2008 Time: 6:04 pm |

People are crazy to be trading this stock down to 7 times the 2008 forecast of $6.00 EPS. But I suppose we should be thankful for crazy, for crazy brings opportunities to long-term investors.

I see the tail risk of balance sheet implosion due to the company’s financial segment, but the cash flow has remained too high to leave any lingering fears after some solid due diligence.

My archived thesis and commentary can be found here:

Infrastructure more stable than Global Consumer

This company is an ideal play on arguably the biggest - and safest - growth trend in the world. Infrastructure. The majority of the world doesn’t have roads, electricity, or running water, and in most cases it is the government that foots the bill for infrastructure, not private industry. So even if we do hit a recession, there will remain a considerable impetus for emerging economies to build up their nation’s infrastructure. Any economic advisor worth their salt knows that you can’t become an G-7 level economy without a cohesive infrastructure policy.

Caterpillar now earns more overseas than here in the U.S.; the rising dollar will hurt at the margin for a few quarters, but having a clear shot to 15-20% EPS growth in 2009 should more than make up for that to investors. The dividend yield is now up to about 4%, making Caterpillar a great addition to the growing list of Treasury-topping blue chips.

Adding 850 shares at $42.97

Ryan Barnes

  • Share/Bookmark
Category: Agriculture, Industrials
Tags: > >

Comments