Despite Caterpillar's (
) poor numbers and guidance, and JPM downgrade, there is tremendous
support for the stock at $82. CAT has already borne the brunt of
underperformance vs. its sector.
[caption id="attachment_55464" align="alignright" width="300"]
Construction equipment from Caterpillar (CAT) services the global
The bad news is known, and it's never as bad as they spell it
out in China. China excavator sales +38% in September and appear to
be turning as there is growth for the first time since 2011.
China is steadily supporting economy not through traditional
stimulus methods on monetary side, but is increasing spending on
railways and power grid infrastructure.
Last night's China's PMI data out of HSBC shows the recovery is
going into the 4Q. Add in US non-residential construction
growth and you have real factors to surprise on the upside.
The sector overall has been heavily shorted and unloved for some
time. Look at short interest in names like Joy Global (
) at a 3 yr. highs and know that there will be a rush to cover.
Today JOY is breaking out through 200mda and rest of the sector
getting a look. Komatsu reports on 28th and will be further
insight into an Asian recovery which I am ready call "slow and
Back to CAT, simply put this is both a technical support story
and a valuation call. At $82 CAT has tremendous support on
the chart through a handful of challenging announcements by the
company over the last 6months. At 3x P/B this is value
territory on balance sheet and EV/EBITDA of 6.8X is as cheap as
this company has been in 3 years.
This why I bought CAT this morning.