I already put in $5k at $86.92. I am thinking of another $5k - $10k purchase. Why? Because I sense value in a blue chip with a serious business moat.
The PE is 13. Historically, it is typically higher. An eyeball glance at PEs since 2003 indicates 16 - 18 most of the time. Obviously I am disregarding the impact of the 2008 crash. The PB = 3.2 and PS = .89. Not bad.
The debt is not insignificant at $40 billion, with net free cash flow of operating activities at $5.2 billion. This seems concerning. However, I read that most of this debt is tied to CAT financing the sale of its goods & services to customers. It's hard to compute a probability of delinquency here. However, given CAT's business moat & fundamentals, I am inclined to think it isn't high.
CAT is the best in class for getting things out of the earth. Consider also that our crust & mantle contain many commodities to keep going for, from what I've read, thousands of years. If anybody is going to continually innovate energy efficient ways to get at this, it should be CAT.
I also think that China & India, among other societies, will simply keep developing. They have a long way to go. There might be lows, but linearly they will trend higher in using CAT goods & services across time. It's a historical inevitability.
Lastly, Bill Gates went in big on CAT. This is compelling, given his association with Buffett. Again, this is another value signal for me. I'm just thinking I might get in at an even better price. I still don't know if I should hold out for a short term opportunity...or go relatively soon in again at what seems to be a cheap price.
Any thoughts here? Thanks in advance.
In the short to mid term, I agree that commodity cycles matter. But for the long term, meaning over 3 years, I'm not sold on what some pundits posit as the end of the "commodity super-cycle".
As I mentioned earlier, China & India won't stop developing. They have legions of people under the poverty line that require infrastructure development and, by definition, commodities. As I also believe we are at peak oil, even with emerging North American tight oil & tight gas exploitation, there will be a premium going forward on removing & refining commodities from the earth.
I'm comfortable with CAT in the long haul. Mr Bill Gates evidently is. I've never been good at short term forecasting, which is why I am soliciting advice here, among other places.
Do you have any short term commodity analysis that might indicate how CAT might swing in the next 18 - 36 months? I'd definitely love to give it a look.
PE=13? How do they make $6.77 when 1H13 was $2.8? Look at tangible book and net out cat finance balance sheet. trading much higher prem to book. Yes, much debt is tied to cat finance which means CAT is booking sales by issuing debt and financing custies...nice work if u can get it....
cash flow is flat if u look close for 1H...the buybacks were funded via more debt...and used to keep dilution down from stock opt/rsu exercise...
You've pretty well summarized my investment thesis.
BTW you can get all the information about delinquencies and repossession rate from Cat Financial's quarterly and annual reports. There is little risk with that subsidiary.