Published September 07, 2012
China is going to spend $156 billion on stimulus that will cover two waterways, five ports, 13 road projects and 25 subway projects.
Most of the cash going toward its subway system, and that means a lot of business for Caterpillar (CAT). Sure, domestic players will get a lot of the business but Cat makes certain machines that only it can make.
The news comes after the company post its best earnings report ever. The second quarter saw record revenue and earnings, continuing a string of amazingly steady execution where double digit beats have become routine. Management tempered its comments and lowered the top end of the range for full year guidance and the stock slipped.
I happen to think Doug Oberhelman is one of the best CEOs in the world and feel the Street focused on the wrong thing. This is the statement that should have sent the shares higher: “While we’re expecting a record year in 2012, we understand the world is facing economic challenges, and if it becomes necessary, we are prepared to act quickly as we did in late 2008 and 2009. While we’re prepared, the good news is, this doesn’t feel like 2008. Interest rates are low, central banks are prepared to inject more liquidity if needed, and housing is coming off lows, not a peak, and seems to be improving."
Well, he was spot on about central banks, as the Fed will likely have no choice except to spring into action very soon after today’s jobs numbers.
Speaking of jobs, in the last year the company has created 12,360 organic jobs -- half in America and the other half around the world -- underscoring how its giant global footprint helps it create prosperity on our shores.
The long-term drivers beyond stimulus spending include: Global infrastructure, a rebound in US construction, mining (hot economies need ore to power the build of their monuments) and petroleum.
Technically, the stock sees resistance at $87 but through there the next upside test comes at $93 and finally $97.
For those with long term accounts I think this could be $125 in the next 18 months.