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Caterpillar Inc. Message Board

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  • alphahunter Mar 4, 2009 10:56 AM Flag

    CAT - Short Squeeze

    "What you are missing is the stock at $22 is trading as if they have a 70% reduction in sales".

    How do you get that? The stock is down 70% does not mean that they are trading with the assumption that sales will be down 70%.

    1) Their revenues is driven by the demand for equipment to build incremental infrastructure projects on a global basis. The key word here is "incremental" (e.g. the derivative of infrastucture output).

    2) You have overall earnings multiple contractions (particularly from a boom to bust cycle)

    3) You have firm value contraction, magnifying the contraction in equity value assuming the level of debt remains constant

    4) Dividend - covered?

    "And are going to pay margin interest thru 2010". Well no, because

    1) you don't need to hold short until 2010, a DCF or NPV of 2010 possible valuation should be enough.

    2) I spread-bet, so no margin interest. I liable for the dividend, though.

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    • I'm didn't say the stock was down 70%. I was speaking of price of stock to sales. If you think the company is going bust then short at 22, but if you think realistic and sales will be at least 30bil this year $22 dollars a share is too low of a valuation of the stock. And this is without infrastructure. The Div will not be cut with that high of sales. The debt is assets that they will continue to draw revenue from. If you short you're going to have to borrow. The company has demonstrated that it can make an operating profit at 18.9 bil. That is the basics.

      • 1 Reply to benwaw58
      • alphahunter Mar 4, 2009 11:44 AM Flag

        "I'm didn't say the stock was down 70%. I was speaking of price of stock to sales".

        Yes I had gathered that. Based on you valuation yardstick, the market prices sales down 70% as stock is down 70% (assuming constant ratio).

        And no, I certainly don't think they'll go bust (Manitowoc might be a better option).

        I spread-bet, no interest margins on shorts but liability for the dividend. You can't spread bet in the US.

        Short covered partially with new shorts placed elsewhere to keep my long-short portfolio balanced.

        I enjoyed the conversation, not the share price action.

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