Caterpillar

Time for the second installment of "let's pick apart my portfolio"... this time we're going to discuss Caterpillar, Inc. (NYSE: CAT).

Caterpillar is an industry leader in heavy machinery used in the construction, mining and forestry industries, as well as being an engine manufacturer and financier of the products it sells. While the U.S. market for construction has slowed recently, CAT is a global company and has seen strong growth in emerging markets such as China. This has allowed CAT to remain profitable in each of the last 10yrs I looked at.

The primary reason I chose to look at CAT is because they build the equipment that builds our infrastructure... notice a hot trend here?

Management: While I don't know nearly as much about the management of CAT as I did about GE, I know enough to say that this company appears to be in good hands. They have a reputation of issuing dividends, buying back shares, and they have been profitable and growing over the last 10yrs.

Financials: I'll spare you from the math, but this stock appears to be greatly undervalued at the time of this blog. At the time of purchase, CAT was down to $38.45/share, while the relative value I calculated is up around $134.89/share. The 52-week low was $31.95/share and the 52-week high was $85.96/share, and I calculated an initial rate of return of 14.95% and an annual growth rate of 3.98%. While these rates weren't quite as attractive as GE's, they still looked very good to me.

Outside Factors: Once again, I'm going back to the incoming president's plan to fix our roads, bridges, and mass transit systems (although I'm not sure Detroit's People Mover or SMART Bus system really qualify as mass transit). In my eyes, this says orders for new equipment capable of upgrading these systems is coming soon.

Performance to Date: So far, nothing... I bought at $38.45/share about a week ago, and as of this post, it sits at $38.40/share. In this market, that might not be such a bad thing though. I still think this stock is poised to take off, but it may not be for a few more months, or even a year depending on how quickly things happen with the new administration.