How Is Caterpillar (CAT) Stock Shaping Up for 2015?
What do you do with a highly cyclical stock like Caterpillar ? It's one thing to try to use common valuation techniques to help make an investment decision, but the truth is that its revenue and earnings numbers are largely guided by movements in its end markets. Moreover, with cyclical stocks it's often the case that they look their most expensive precisely when you should be buying them. In other words, just before their earnings are about to turn up with the cycle. With that said, what's an investor to make of Caterpillar in 2015?
Caterpillar prepares for a tough yearReaders already have an idea of how cyclical some of Caterpillar's construction end markets can be, and recent events have demonstrated that its other end markets are equally prone to the ups and downs of their business cycles.
Back in October, in its third-quarter earnings release, management gave its preliminary sales and revenues outlook for 2015. At the time, they forecast 2014 sales and revenues to be $55 billion, and for 2015 sales and revenues to be "flat to slightly up from 2014."Fast-forward to the fourth-quarter results, and 2015 sales and revenues are now expected to decline 9% to 50 billion. Similarly, management's guidance for 2015 EPS of $4.75 was significantly lower than analyst estimates of around $6.80. What went wrong?
Source: Caterpillar presentations. Quotations are from fourth-quarter earnings call.
- Bull -- Downside is limited, and oil and mining commodity prices are about to bottom, especially with stronger U.S. growth in 2015.
- Bear -- China carries systemic risk, growth will continue to slow and take other emerging markets and commodity prices demand down with it.
- Soft Bull -- Low commodity prices will eventually spur faster growth, particularly in emerging markets; the commodity cycle will eventually turn as demand kicks in and it will take Caterpillar with it at some point.
The article How Is Caterpillar (CAT) Stock Shaping Up for 2015? originally appeared on Fool.com.
Lee Samaha has no position in any stocks mentioned. For the record, the author's position is somewhere between the bear and soft bull positions. Closer to the bear, at least on China, but who knows when it will all unravel?The Motley Fool recommends Emerson Electric. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.