Is Comeback In The Cards For Caterpillar's Stock?
Caterpillar 's ( CAT ) stock hasn't made progress in the past two years.
In 2011, the stock price lost 3%. Last year, it eased 1%.
Is a comeback in the cards?
With a lackluster Relative Strength Rating of 44, some might wonder why anybody would even ask the question.
Two reasons: First, the Machinery-Construction Mining industry group leapt from No. 151 six weeks ago to No. 6 as of Thursday's IBD. That torrid rise alone should snare the investor's attention. And Caterpillar is probably the strongest stock in the group.
The second reason to pay some attention to Caterpillar is the company's fundamentals.
Return on equity was almost 43% in 2011, the best in four years. Pretax margin was 11.5%, the best in five years.
Earnings increased 29%, 48% and 49% in the past three quarters. Revenue, though, decelerated, falling from 23% growth to 22% to 5%.
China and the world economy will figure big in the outcome for Caterpillar. In Q3, North America accounted for 37% of total revenue. The rest was international.
Admittedly, the picture for the world economy is blurry. Depending on whom an investor listens to, the tone ranges from glum to encouraging.
The disciplined investor doesn't have to guess right to win. The idea is not to guess at all. Look to the stock and the market for guidance.
Right now, Caterpillar has been building a base for almost 11 months. The stock is building the right side but is still 18% off its high.
The Accumulation-Distribution Rating is B+. The up-down volume ratio is a bullish 1.8, on a gauge where 1.0 is neutral. This suggests funds are buying shares.
In the third quarter, Fidelity Contrafund opened a modest position, buying 350,000 shares. Overall, though, fund participation has declined. In the second half of 2012, the fund count dropped from 1,710 to 1,623.
Wait for Cat to finish its base and break out, hopefully with a much stronger RS rating.
The quarterly payout is 52 cents a share. The annualized yield is 2.2%.
Caterpillar will report Q4 results before the open Jan. 28.