Wednesday, July 8, 2009

added caterpillar

I bought some shares of Caterpillar (CAT) today for my wife's RRSP. The basic thesis for this purchase is that for a long term hold, Caterpillar offers exposure to a leader in building out the infrastructure of the world. The short term may look very gloomy for this company, which presents a buying opportunity as the shares are down 65% from their all time high.

Caterpillar's CEO is actually predicting a return to 2008 sales levels within five years. This may or may not occur, but it is interesting to note that CAT was trading at $63-$85 during 2008 before the crisis hit.

Incidentally the stock actually yields a surprising 5.5% and is maintaining the dividend for now in the face of the downturn.


Andrew said...

I've always wanted to purchase CAT but the price was always a bit out of reach until now.

The main reason CAT is a overall good reason to have, is that people will always need to move dirt, whether it be in small or massive quanities.

Progress and infrastructure does not happen without moving some dirt.

MG (moneygardener) said...

It could go lower but I think with a long term view the stock looks at least fairly valued here.

Daniel M. Ryan said...

For a stock in the lowest quintile of P/E's CAT has an incredibly high long-term ROE and EPS growth. Despite its 1Q '09 loss of 19 cents/share, as compared with 1Q '08 earnings of $1.45, its 1Q '09 cash flow from operations was up as compared with 1Q '08. So was free cash flow; it was also 1.78 times 1Q '09's dividend payout.

Earnings are going to be crimped this year, but I see no reason why the dividend won't be maintained.