Caterpillar Inc. Becomes a Proxy for Trump Disquiet

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

After beating the market handily for a year, Caterpillar Inc. (NYSE: CAT ) has become a proxy for Trump disquiet.

All it took was one comment on the company's first-quarter conference call. CFO Bradley Halverson called the results a "high water mark," and the bears were off to the races.

No, no, no, wrote InvestorPlace's Charles Payne . There's still a lot to like. A Bloomberg report said there is a "production capacity shortage" at "machinery automation" companies like CAT, indicating good times ahead. It's not only a strong buy, it's cheap, said Zacks.

On the other hand. It could test 2018 lows, according to Investopedia. The high water comment should not be dismissed, according to the Derrick Letter.

Who's right, who's wrong? Only you can decide.

History Says Buy Caterpillar

If you go back to the start of the current recovery, in March 2009, history says buy, buy, buy. The value of Caterpillar has nearly tripled since then, more than doubling the gains in the Dow Jones average. Caterpillar has also delivered a steady diet of dividends, now at $3.12 per year, yielding 2.13%.

On the other hand, that passage has been anything but smooth. Caterpillar stock rocketed out of the recession, stalled mid-decade, then took off again from early 2016 to January of this year. It has since been whipsawed downward, much like the Dow but in an exaggerated way, reflecting its status as a battleground.

This has been the stock's pattern since I was a kid in the 1960s. It rises and falls in tune with the economy. But if you've bought and held the stock for the long term, you've done all right.

Chances are that will remain the case. The real question is: What about the economy?

Economic Anxiety Grows

Recoveries get more brittle with age, just like we do. Trading houses turn over and the fall, when it comes, is always accompanied by the same wide-eyed amazement, because trading floors have no institutional memory.

We're now nearly a decade into the current recovery, and most economists are expecting a slowdown or even another recession. Did you know every Republican president since Teddy Roosevelt has faced a recession in their first term?

Trade wars and saber rattling don't inspire confidence, and people with big gains in their pockets are easily spooked. Baby boomers are especially skittish, as the peak of the boom is now retiring, and a stock rout could easily turn caviar dreams into cat food.

Caterpillar's financials reflect neither this anxiety nor its trading pattern. The current balance sheet is little changed from that of 2015. Gross profits have been steadily rising, even if it took a huge hit in the December quarter to get maximum benefit from the Trump tax cut. Operating cash flow has generally been positive.

The Bottom Line on Caterpillar

Thus, the bottom line on Caterpillar, as with many stocks, depends on your age.

If you're in your 20s or 30s, you can buy Caterpillar stock with confidence. It should get through the next recession as it has gotten through before, sailing through both downturns and fears going back decades.

If you're an income investor, know that CAT kept its dividend steady through the Great Recession and the dot-com collapse. Let the panic roll by and then you, too, can buy with confidence.

It's only those of us looking for capital gains, but wary of a short-term market slippage, who need to be walking away from Caterpillar right now. The stock price is vulnerable to a market fall. It always is. If you can't handle that risk, stay away.

Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time , available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.comor follow him on Twitter at @danablankenhorn . As of this writing he owned no shares in companies mentioned in this story.

More From InvestorPlace

Compare Brokers

The post Caterpillar Inc. Becomes a Proxy for Trump Disquiet appeared first on InvestorPlace .

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

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

In This Story


Other Topics


Latest Markets Videos