Markets
CAT

Why Caterpillar Inc.'s Shares Plunged 15% in September

Shares of industrial equipment maker (NYSE: CAT) saw its stock drop 15% in September as investors started to realize that commodity markets could be in trouble for some time.

What: Shares of industrial equipment maker Caterpillar (NYSE: CAT) saw its stock drop 15% in September as investors started to realize that commodity markets could be in trouble for some time.

So what: Commodities like gold, silver, copper, and even soybeans have plummeted in price this year and Caterpillar is starting to feel the pinch. The company's revenue fell 6% in the second quarter and with China's weakness of late and commodities continuing to fall there's worry that a recovery isn't in store any time soon.

The real hammer fell on September 24 when the company announced it would cut 10,000 jobs through the end of 2018, including 5,000 between now and the end of 2016. Cuts like that show just how pessimistic management is about the next couple of years.

Now what: This is what happens with cyclical stocks. They do well when the economy is booming and when it takes a turn south their operations and stocks can take a big hit. Caterpillar was one of the beneficiaries from the boom in commodities and the global economic recovery over the last six years, so now it's taking a breather.

Some of the things investors are worried about are very valid for Caterpillar. Demand from Asia, and China in particular, has been weak and we could be in for a long slowdown there. Commodities may also not reach the heights they were once at now that the economy is recovering and inflation doesn't appear to be a big problem. So, mining may be a bad market for equipment suppliers in the future.

But long-term I think Caterpillar has a strong business and has weathered these storms before. It's not cheap at 17 time forward earnings estimates, but weakness in the stock should be seen as an opportunity for investors with a long time horizon.

The next billion-dollar iSecret

The world's biggest tech company forgot to show you something at its recent event, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here .

The article Why Caterpillar Inc.'s Shares Plunged 15% in September originally appeared on Fool.com.

Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

Copyright © 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .

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

CAT

Other Topics

Stocks

Latest Markets Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More