Thursday, 25 October 2012

Quick Technical Charts - Caterpillar (CAT)

Quick technical look at CAT.  Everyone knows about the slowing growth in the emerging markets which has affected the commodities market significantly.  One big victim of this slow would be those who make equipment and machines to help infrastructure building and natural resource mining: Caterpillar.

Looking at the CAT charts, you can see this clearly where CAT has strongly diverged from the S&P 500 who is still only 3-4% from its peak.  CAT is down an astounding 30% since its peak in Feb, right before the slowing emerging market news really took hold.  With their recent warnings, all the way to 2015, its not necessarily unjustified the drop.  However, anything there's such a big drop in a relatively established company that is NOT caused by a market innovation disruption, there is the potential for a cyclical bounce.

Looking at the CAT charts, it is now back at its support line of $82.  With a PE of 8-9, its hard to make an argument that its still too high of a valuation.  Though its not yet clear when the growth will return (2015 is a bit scary in terms of time frame), there can be a case made that in a long term time frame, CAT represents a somewhat interesting bet to buy in now...IF you have a several year horizon.  A dividend yield of 2.5% does help soften the multi-year wait however.


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