Emerging market mining equipment not dead in the water


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Caterpillar's ( CAT quote ) chart shows strong support in the 81.00-82.00 level (see chart below)

[caption id="attachment_57666" align="alignright" width="300" caption="Caterpillar is stock for Emerging Market Growth"] [/caption]

...and weakness from China well flagged and priced into the stock.  Last night on Fast Money I debate CAT from the bull case and argue that this company, who gets more than 60% of their sales from emerging markets, is priced to own.

The company has been clear to investors saying that CAT is in a "transitional" demand year.  This is no surprise. Lower mining sales have been priced into stock and factored into revised guidance by CAT themselves leaving the stock at very interesting valuation levels.

While global commodity demand is weak and mining project are being cut back its difficult to see the table being pounded. Fair enough.  Demand is recoiling but we are not expecting a return to 2010 or 2006 conditions for that matter.

But growth isn't dead and the company is seeing emerging markets pockets of strength. While, Latin America and China have slowed, CAT is going to grow 10% in Africa according to their largest African distributer, Barloworld.

JP Morgan just reported a 3rd strong month of sales in May, which means a better than expected selling season continues in China.

-   Management has proven the elephant can dance - meaning they can cut costs and do what they need to whether slower demand.  Doug Oberhelman is one of the best in the business and this was a 2009 accomplishment that shows they will be efficent with their spending and CAPEX.  Stock levels:  If CAT was banging up against $100 you don't rush in, but at $83 stock is at interesting level just above what I think is great support and your stop around $80

-    Pre-crisis, when the company was much less profitable it traded at a  14-14x multiple.  The stock is now at a 12x current earnings and 10x next year's earnings while trading a P/B of 2.7x well below the 5.5x levels of 2006.

- Today they raised div to record .60/QTR to give investors close to a 3% dividend yield to add to the rebounding earnings momentum.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Stocks
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