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Big-cap Caterpillar ( CAT ) is a long way from qualifying as a CAN SLIM stock. The plunge in commodity prices has battered the maker of construction and mining equipment. However, even aggressive growth investors will sometimes watch for either a turnaround or a cyclical play. The construction- and mining-machinery industry group ranked No. 8 among 197 industry groups in Wednesday’s IBD. Seven weeks ago, the group was No. 131. This suggests that the deep-value camp is coming into the stock, even if many people in the industry expect 2016 to be another tough year. Caterpillar will report Q1 results before the market’s open Friday. The Street isn’t expecting much. Earnings are expected to roll in at 68 cents a share, down 60% from the year-ago period. Revenue is forecast to drop 26% to $9.39 billion. (Q1 is normally Caterpillar’s slowest quarter.) One long-range factor that could eventually boost Caterpillar is the worldwide trend toward urban living. A United Nations study estimates that by the year 2050, 70% of the world’s population will live in cities, up from 54% in 2014. Construction and mining of construction materials will be needed, and Caterpillar is well-positioned to benefit. In 2011, Cat completed the acquisition of Bucyrus, widely regarded as a great acquisition. The weak mining sector, though, has delayed the potential benefits. Yet, that won’t always be so. Caterpillar’s stock chart shows a Jan. 20 bottom in the roughly 18-month decline. Since then, Caterpillar has risen about 40% and is 10% off its 52-week high. Is this stock a buy? Probably not. As William O’Neil wrote in “How to Make Money in Stocks,” an individual investor buying a turnaround stock should “look for annual earnings growth of at least 5% to 10% and two straight quarters of sharp earnings recovery that lift results for the latest 12 months into or very near new high ground.” One way to play Caterpillar is as an income stock. The company’s quarterly dividend is 77 cents a share, which represents an annualized yield of 3.8%. Cat usually announces a dividend increase in June. How many red marks does Caterpillar’s stock get? See on IBD’s Stock Checkup Small-cap rival Joy Global ( JOY ) reported earnings declines for fiscal 2013-15, and the Street expects a 92% drop in fiscal 2016 ending in October. However, analysts foresee a 144% earnings jump in fiscal 2017. At the March 3 earnings call, Chief Financial Officer James Sullivan said the backlog increased almost 3% in fiscal Q1 ended in January. “This is the first time that backlog has increased since the second quarter of 2014,” Sullivan said. Like Caterpillar, Joy marked a low Jan. 20. Joy has rebounded more than 150% since then. Joy lacks the strong numbers that would attract IBD-style investors. Joy announced in December that it was slashing its quarterly dividend from 20 cents a share to 1 cent a share. Image provided by Shutterstock . Scalper1 News
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