Despite Caterpillar’s (CAT, quote) poor numbers and guidance, and JPM downgrade, there is tremendous support for the stock at $82. CAT has already borne the brunt of underperformance vs. its sector.
Construction equipment from Caterpillar (CAT) services the global consumer class
The bad news is known, and it’s never as bad as they spell it out in China. China excavator sales +38% in September and appear to be turning as there is growth for the first time since 2011.
China is steadily supporting economy not through traditional stimulus methods on monetary side, but is increasing spending on railways and power grid infrastructure.
Last night’s China’s PMI data out of HSBC shows the recovery is going into the 4Q. Add in US non-residential construction growth and you have real factors to surprise on the upside.
The sector overall has been heavily shorted and unloved for some time. Look at short interest in names like Joy Global (JOY, quote) at a 3 yr. highs and know that there will be a rush to cover.
Today JOY is breaking out through 200mda and rest of the sector getting a look. Komatsu reports on 28th and will be further insight into an Asian recovery which I am ready call “slow and steady”.
Back to CAT, simply put this is both a technical support story and a valuation call. At $82 CAT has tremendous support on the chart through a handful of challenging announcements by the company over the last 6months. At 3x P/B this is value territory on balance sheet and EV/EBITDA of 6.8X is as cheap as this company has been in 3 years.
This why I bought CAT this morning.