Novice Investing - Caterpillar Crawls To A Stop

Date: Monday 01st 2008f December 2008 04:58:18 PM

Caterpillar Crawls To A Stop - 10/21/2005

By: Novice Investing Staff

Caterpillar Inc. (CAT) slide on Friday as it reported earnings of $ 94 cents per share versus analyst guidance of $ 1.06 per share. It blamed higher production cost and production problems for the slowdown. This very same issue had plagued Caterpillar in December of 2004.

Caterpillar, the maker of heavy equipments used in construction, is widely used as the barometer of the economy. During economic slowdown, demand for heavy machinery generally drops as businesses curtail spending.

For 2006, Caterpillar expects earning to rise 15 to 25% from 2005 level. That gives 2006 EPS estimate of $ 4.71. At a recent price, Caterpillar trade at a forward Price Earning Ratio of 10.4. Still, CAT is not cheap. At least, not yet. Its business tend to be cyclical. P/E might look low but if there is hint of economic slowdown, we believe CAT stock price will drop due to profit concerns. Furthermore, CAT has $ 15.8 Billion in long-term debt. While this is offset with $ 11.3 Billion in long-term investment, investor should be careful, nevertheless.


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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Caterpillar Inc. (CAT) or any other securities.

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