A Look at Caterpillar Inc. and the Outlook for Infrastructure Companies
In this segment from Motley Fool Money, the cast digs into Caterpillar's (NYSE: CAT) growing issues with U.S. law enforcement before looking broadly at where the infrastructure industry may be headed after enjoying a bullish outlook thanks to the Trump administration.
A full transcript follows the video.
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This video was recorded on March 17, 2017.
Chris Hill: Caterpillar ismaking headlines,but not for good reasons. Earlier this month, U.S.law enforcement raided three ofCaterpillar's offices as part of an IRS probe. This week, thecompany hired former U.S.Attorney GeneralWilliam Barr to deal with theongoing government investigation. Ron, can we call that,officially, a red flag? Any time you have to hire the former -- it's like, who used to be the leading law-enforcement official in America? Let's get that person.
Ron Gross: It's a mess,and I feel kind of bad for the new CEO. He'sonly been there a short period of time, and heinherited quite a mess. You never wantfederal agents raiding your headquarters. Just a little advice for other companies out there: That's bad. The IRS is saying a $2 billion hit is coming their way fortaxes that they should have paid,probably related to their Swiss subsidiary,although these investigations are alwaysa little bit cryptic as they're going on. The company, of course, says that they arecompliant and cooperating. But then again,like you said, this week, we see a former U.S.attorney brought in to help matters, and you havepressure from an investment group, theCTW Investment Group,pushing for more disclosure,better corporate governance. So, not good timesover at Caterpillar, amid a global slump inexactly what their business lines are.
Seth Jayson: I can't wait to see the legal thrillerheadquartered in Peoria. International thriller.
Hill: [laughs] Speaking of Caterpillar,we were touching on this before we started taping today -- where are we with the business of Caterpillar,specifically their industry? I'm talking about infrastructure. A few months ago,it really seemed to be all anyone was talking about, in terms of, 2017, we're going to have this big boost ininfrastructure spending. And it reallyseems to have quieted down, Seth.
Jayson: Yeah.Terex, which is a company we had in Hidden Gems,I took the lead from their own management, which said, I'll paraphrase, "We ain't seeing aninfrastructure bill, and we're not going to count on it, andeven if we had seen one,that money wouldn't have come through for several years." I actually sold Terex on that news,because the market continues to value these companiesas if there's something around the corner. And we've seen nothing so far.
Andy Cross: And we're just not seeing it from international much, either.
Gross: Yeah,a lot of companies did get the Trump bump. November-ish waspretty hot for some of these companies.Titan International, another company we follow, has had quite a run,bumping off the bottomover the last couple years, but still remains weak when you look at it on a five-year basis. These arecyclical businesses,and I'm a firm believer that eventually,the cycle does change. But it's always a matter of how long does that take, and what rate of return on anannualized basis can you put in yourpocket? Therein lies the trick.
Jayson: Yeah. And we've seen no indication from them that things are about to change,except that they're very excited about some of their agricultural tires. But they've beenexcited about them for two or three years at least.
Gross: I am happy to see the balance sheet firm up on that. Listeners of the show will know I talk about Titanprobably too much.
Jayson: We have it over at Hidden Gems.
Gross: I'mstill a believer in it. I'm still a shareholder in it. So, just, patience.
Andy Cross has no position in any stocks mentioned. Chris Hill has no position in any stocks mentioned. Ron Gross owns shares of Titan International. Seth Jayson owns shares of Titan International. The Motley Fool recommends Titan International. The Motley Fool has a disclosure policy.