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Caterpillar And The Dollar
This article originally appeared in The Daily Capitalist.
Caterpillar, Inc. (CAT) came out with an outstanding sales report for the quarter ending January 31, 2011. Sales are through the roof: up 48%. This caps off nine straight rolling three-month periods of growth. Per region sales were:
Asia-Pacific: January +38%, December + 47%, November +51%.
North America: January 58%+, December +48%, November +53%.
Europe, Africa and the Middle East: January +46%, December +37%, November +43%.
This is an outstanding report. Caterpillar is the biggest manufacturer of heavy equipment in the world.
But why? Are all these economies booming while we aren't? China has been experiencing a boom for years based on its turn to capitalism in 1979. But ... the current reason is that the People's Bank of China has been flooding its economy with fiat money creating another false housing boom. Now some of China's growth is real, but it is difficult to tell since their data is not transparent nor does it account for dictates from Beijing to banks to lend specific sums for a given period. But they buy a lot of heavy equipment with those dollar they have accumulated.
The rest of the world, including the U.S. is engaging in monetary and fiscal stimulus as well. It is difficult to assess real versus fiat money based growth, but flood an economy with enough cash and credit and it will be spent.
Which gets us back to the dollar. I made this chart comparing the price of Caterpillar's stock to the rise and fall of the dollar. For the most part, they have been the beneficiary of a declining dollar, courtesy of the Fed. That is, concerns by holder of dollars about the level of our deficit and the willing of the Fed to monetize it, have depreciated the value of the dollar relative to other currencies. A cheap dollar is good for exporters and bad for US consumers. One of the reasons we are seeing price increases here is due to the decline of the dollar which makes imported goods more expensive. This is a complicated story because the Chinese yuan (RNB) is tied to the dollar, so there is some parity there. But ...
So what is bad for consumers is good for multinationals like Caterpillar. Which are you? Consumer or Caterpillar employee or shareholder?
NB. The reason Cat didn't decline in price during the eurozone crises which saw a flow of capital into the dollar, is that world economies other than the eurozone were seen by investors as improving and that Cat's future would be rosy.
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"It is difficult to assess real versus fiat money based growth, but flood an economy with enough cash and credit and it will be spent."... I would add...spent on equities despite their pre crash, pre QE, pseudo real world valuations.
Everything anyone ever learned about equity valuation has gone out the window, through the woods and over a cliff.
The current run rate and quarterly earnings is what it was doing at the last cycle peak in 2007 when it traded at $70- $80 range. Great brand or not this is a cyclical, and it is trading at 20% above the last peak.
Probably the Japanese will build robot harvesters and plows that will wake themselves up, check the weather, check the soil moisture, and go plow and harvest at the right time.
Knowing the japanese, they will then program the harvester robot to give you a blowjob afterwards.
On a long enough timeline.....CAT has UNDER-performed the DJIA for all but a couple of months the last 32 years on a long term comparison chart.
Price was ~$32 during the dot com peak. Let's say it's worth double that now, so $64. Closed at 105.86 recently. So eligible for a -40% correction. The adjusted PE would be 15.35. Much more in line with reality.
In case you didn't notice, CAT has a higher PE than *AAPL* right now. It's higher than ORCL, CSCO, MSFT, IBM, etc, etc.
It has by far the highest PE of any DJIA company with an EPS of $1.00+ (+17.5% above 2nd place -- KFT).
So unless CAT can deliver results that outpace the leading global companies by 20-40%, (HA!) then their price should fall.
Cat and APPL are doing a joint venture, the iD9, the pocket bulldozer.
"...their data is not transparent..."
What do you mean? Last time I looked around it seemed to me that ALL COUNTRIES are lying on purpose trying to lull their populations into complacency.
If you actually looked more closely and understood what you were looking at you would see a big difference in transparency.
We at least have shadowstats if you don't like hedonic adjustments.
They would put you in jail in china for revealing annual steel production, or the commie version of shadow stats.
Just ask a couple of australians what happened when they tried to obtain information on annual chinese steel production.
Hello zero hedgers,wellcome to my blog to vote ofr the FED existence:
http://trendybull777.blog.com/2011/02/21/hello-world/
Let us not forget that Cat sets the standard for heavy equipment. I'm not an employee or stockholder just someone who's familiar with it.
Miners around the world are on waiting lists for the Cats they want. I think Cat will get by.
CAT is BY FAR a superior product. It has NO competition if you want to get the job done. I know thats built into the share price, but I just wanted to let people know first hand from someone who knows!
I'll buy that for a dollar. We use all CAT stuff on the farm. The only thing not pure CAT is our front wheel assist tractors that are for the most part a Massey frame, but the heart of them is CAT all the way.
Former employee, current customer, owner of plenty of yellow paint.
In the larger equipment, no one can outclass Cat- but you certainly pay for it. In the medium size iron, Cat has real competition, but the name still maintains a premium in price.
In the smaller Iron, Cat is the same as all the rest. Made cheap to reflect a cheap price.
As far as Chinese Cat goes, the verdict is still out. Can Cat control what the Japanese could not; keep up quality in a country that has no standards.
P.S. I know full well what the Cat order book can do. I will not divulge the time frame, but I remember a time when a 14 month order file melted to a 30 day order file as customers walked away from deposits or found every legal reason in the book (including slow delivery from the Cat factories) for not completing sales contracts.
Paint it yellow, put on a Cat decal and double the price. A great brand.
Cat is going.
There is a plant near us and they cannot get enough trucks to ship the stuff out.
You know what they say, here kitty kitty kitty.
Shareholder. Bought CAT at $33. Go CAT go.
I was there at that level too.. got my gains and left pretty early. When are you going to cash your chips??