Questions about Cat from an investor's perspective

catstockblog · 02-10-2009, 01:51 AM

Somebody here posted a link to my site that several hundred of you clicked on so I'd like to return the favor by sending some of my traffic this way (should about average out) by linking to the answers to questions here. If you can spare a few minutes, perhaps you can educate me and my readership. Unless they work for the company, CAT's just a ticker that's either losing them money or making it. But many "fundamental" investors feel they need to know the nitty-gritty of what a company really does, so I figure I could do a little service. Anyway:

1) Cat brass says the average piece of equipment in the field is over 10 years old and needs to be replaced -- point being that when the economy turns around, lots of people are going to need new equipment, which will juice sales, profits, stock prices, etc. Does the "aging fleet" argument hold up from your experience as an owner or operator?

2) I asked the editor of a major trade magazine what sets Cat equipment apart from the rest. He said most equipment does roughly the same thing for the same price, and sales decisions come down to dealer relationships -- the ability to keep machinery running -- and operator preference rather than physical superiority of the product. What do you think of this assertion?

3) Finish this sentence.... "if Cat really wanted to juice its stock, the first thing it should do is...."

4) I read at a trade mag that 50 percent of Cat equipment is paid for in cash -- what are the advantages of buying outright vs. financing?

That's enough now,
regards
tom

HeyUvaVT · 02-10-2009, 08:07 AM

these are some good questions..will get back with some good answers this evening when I get home from work..not enough time to get into it at the moment though! I am sure you will find no shortage of knowledge and most definitely opinions here!

Dualie · 02-10-2009, 07:56 PM

1) I don't know if I would say that they the need replacing but I would say that the average age is indeed 10 years. I don't think anyone has exact numbers but I would think that its very close to that. and when the economy picks up their will definitely be a massive need for new equipment. Combine that with California proposed emissions regs and 2012+ could be record setting for CAT.

2) SERVICE SERVICE SERVICE. Cats got the dealer network and parts stores to keep their equipment serviced and running when down time costs money that matters most. their field service, and support fleet is unrivaled.

CAT has become the gold standard. When reading parts or service specs its not unheard of to see the term CAT or equivalent. Other notables in this area are Timken bearings and Crosby rigging.

There are machines from other company's that are much cheaper and will do the same job, cats name has come from service and dependability and the most important factor R.O.I.

3) that's one of my pet peeves about corporate America in general to much pressure from the share holders wanting instant gratification with ZERO foresight into the future. Right now I think cat should be focusing on INNOVATIONS and improvements to the existing product catalog. Theirs not a whole lot they can do besides try to stem losses in the current economic climate. Getting out of On-road diesel was probably a good idea for them as their product has become a black sheep in this world of new emissions standards.

4) That boils down to the individual company and their own corporate strategy and tax reasons. Its a matter of financial semantics.

I am a shareholder in CAT and my personal opinion is their being lead by some very very sharp individuals and my over all faith in the company as a whole is pretty high.

leverpuller · 02-10-2009, 08:26 PM

cat is good they have a lot porbelems with some ex souch as tracks and motar prol souch as a bern new 315c ex blue op 2009 afert 20010 u cant buy a road trator with a cat motar

John C. · 02-10-2009, 08:54 PM

I can't say, and I doubt anyone else can prove that most equipment being used today is a certain age and needs replacement right away. I do know for a fact that this country has seen the greatest built up and sales of new equipment in the last ten years. The franchised dealers in my neck of the woods have sold more new iron in that time period than in any other period of my life. From my point of view the only way a huge amount of iron will need to be replaced is if it is legislated out of existance. This issue has to do with new environmental laws coming into effect. I don't think that is a certain future but it is a very possible one. One only need to look through the Machinery Trader rag for used equipment to see there is plenty of iron currently available on the market today.

As far as statements of why people buy any one brand of equipment, one has to look at the changes in business strategy in the last few years. Twenty years ago a company buying new iron might base the purchase on personal preference, either the brand of iron or the particular sales representative. They would keep that machine through at least one major rebuild cycle before considering moving it out of the fleet. In the past five years most of the companies I have dealt with take a short term view. They buy a machine to last for a targeted amount of usage or time and then trade it out of the fleet. Caterpillar machines are known in particular for their longevity, superior parts availability and trained technicians to keep it running. In todays reality though that longevity doesn't mean much if the same machine will only be run for say 5,000 hours and traded out before major wear factors have to be addressed. This strategy of business has worked against Caterpillar to some extent. I think market share is being lost to lesser brands because of it.

In the first paragraph the purported statement of Cat brass saying iron will need to be traded out "because of the aging fleet" might be taken as trying to juice the stock.

I don't know of too many companies that can afford to pay cash for new iron. Most that I have dealt with want any little bit of leverage possible should something go wrong. I don't know the tax ramifications but would assume there would be many with running a finance package.

Caterpillar is still the number one manufacturer of heavy equipment in the world. They probably have the deep pockets necessary to last through these troubled times. Stock holders should expect to see a wild ride in the near future but I think it will ride the waves as well as any large cap corporation.

surfer-joe · 02-11-2009, 01:08 AM

Cat stock is a good solid investment, for the long run. Don't tell your people that they are going to make a killing in it short term. That won't happen. The price is low right now, a super good time to invest – if one had any money that is….

Cat has a great disadvantage in that their markets can rise and fall very quickly. That makes production scheduling a living hell sometimes. You may have noticed that Cat removed itself from domestic truck engine manufacturing recently. The reason is that truck engine emission rules were and look to continue to change very rapidly, particularly in California where goofy CARB has it's hands around engine builders throats. Just not enough profit to justify spending the money needed to conform, redesign, test, and market the small numbers of engines needed in trucks. A niche market at best.

Cat also announced a large lay-off worldwide. They can not afford, nor can their dealers afford having oodles of iron sitting on lots everywhere running up financing costs.

As mining and heavy construction come back, so will Cat. They build superior long lasting product with great product support, service, and parts availability, and one that holds it's value extremely well.

catstockblog · 02-11-2009, 12:40 PM

Thanks for all your replies, gentlemen ... I posted a link to this thread from my site so many actual Cat investors will be reading.

Dozer575 · 02-12-2009, 02:27 AM

Quote:

Originally Posted by John C.

I can't say, and I doubt anyone else can prove that most equipment being used today is a certain age and needs replacement right away. I do know for a fact that this country has seen the greatest built up and sales of new equipment in the last ten years. The franchised dealers in my neck of the woods have sold more new iron in that time period than in any other period of my life. From my point of view the only way a huge amount of iron will need to be replaced is if it is legislated out of existance. This issue has to do with new environmental laws coming into effect. I don't think that is a certain future but it is a very possible one. One only need to look through the Machinery Trader rag for used equipment to see there is plenty of iron currently available on the market today.
If someone was smart they would include something like this in the contract to do this supposed infastructure work. "Only model year 2009 heavy equipment will be allowed on this job site" so in other words don't bother bidding if you aren't planning on buying brand new equipment. This only makes sense, because that is the whole reason for the stimulus deal.
And those Cat employees need to work too.

As far as statements of why people buy any one brand of equipment, one has to look at the changes in business strategy in the last few years. Twenty years ago a company buying new iron might base the purchase on personal preference, either the brand of iron or the particular sales representative. They would keep that machine through at least one major rebuild cycle before considering moving it out of the fleet. In the past five years most of the companies I have dealt with take a short term view. They buy a machine to last for a targeted amount of usage or time and then trade it out of the fleet. Caterpillar machines are known in particular for their longevity, superior parts availability and trained technicians to keep it running. In todays reality though that longevity doesn't mean much if the same machine will only be run for say 5,000 hours and traded out before major wear factors have to be addressed. This strategy of business has worked against Caterpillar to some extent. I think market share is being lost to lesser brands because of it.

In the first paragraph the purported statement of Cat brass saying iron will need to be traded out "because of the aging fleet" might be taken as trying to juice the stock.

I don't know of too many companies that can afford to pay cash for new iron. Most that I have dealt with want any little bit of leverage possible should something go wrong. I don't know the tax ramifications but would assume there would be many with running a finance package.

Caterpillar is still the number one manufacturer of heavy equipment in the world. They probably have the deep pockets necessary to last through these troubled times. Stock holders should expect to see a wild ride in the near future but I think it will ride the waves as well as any large cap corporation.

Really a good post John.
I think Cat and other manufacuters of equipment, would be happy to see legislation to rid any business of machines that are over 10 years of age. And gee maybe they will do like they are planning on doing with cars and offer to buy the old machine for say 5000 but that has to go towards a new machine.
You know to help rid us of all those old polluting yellow junkers out there.
I think it will be okay to own an older machine, but you won't be using it for any sort of business, unless it passes emissions and doesn't leak a drop of oil.
Don't want that highly toxic oil anyplace on the ground ya know. If you have an old dozer that leaks they will send one of those toxic clean up crews to quarantine it, and then charge you for a service you didn't want.

Wolf · 02-12-2009, 02:42 AM

CAT is a good stock, and part of the Dow 30, but for some reason Deere (DE) seems to perform better. In this market, though, I actually shorted DE after a big run-up at the end of last week.

Why is it that DEERE has a better track record than CAT on the Street?

Speedpup · 02-12-2009, 06:31 AM

I see tons of equipment forsale cheap and retal companies cutting their inventory. That is not good for sales of any equipment company. Contractors don't have confidence to buy in these troubled times .

KMB83 · 02-12-2009, 06:57 AM

Good question wolf,

I've noticed some of the same. I own a little deere stock, got their annual report the other day. couple fun facts:

-there net profit increased 50% in the last two years
-they are investing in water treatment/desalination
-they have propeitary turf grass varieties for sale to golf courses
-they own wind farms, for renewable power
-over 50% of net income came from outside USA

i think mainly it is that they extort more out of farmers off of just brand recognition than maybe cat can out of construction businesses.

i am always shocked at how farmers can be angry as all get out over big companies carting tons of cash off the farm (monsanto) and yet LOVE john deere. i dont know much about cat's business, but it appears as though deere is involved in way more than i thought.

maybe cat is too narrowly focused?

or they dont do as well selling their song to investors?

catstockblog · 02-12-2009, 10:18 AM

Re Deere vs. Cat: I suspect Deere's exposure to agriculture -- which is typically a low-margin or highly volatile business -- causes people to discount it a bit, even though it makes many of the same kinds of tractors Cat does (and people gotta eat).

Cat, being a part of the Dow 30, is more hostage to that indexes' whims. Also, Cat is the "heavy industry poster child" in a world of Macdonalds and Walmarts.

Also: Cat's exposure to the petroleum/mining/commodities crash is hurting it too. Stimulus package brings back construction but not the rest.

JJ Joseph · 02-12-2009, 03:54 PM

Investors need to remember that Cat's biggest division is Logistics. Logistics moves stuff around the world, fast. When you think about it, it shouldn't surprise you that aircraft parts are a big part of their business. That's because an aircraft stuck waiting for parts is even more of a problem than an excavator stuck for parts because a stuck aircraft can be paying $500/day for parking while waiting for parts to arrive. Cat Logistics is leading edge stuff, and it really works for getting the parts right NOW. You only need to consider Russian airplanes & tractors: they may be cheaper, and they work pretty good. But if you're stuck for parts, your Russian tractor or airliner will wait on the ground for months until the parts arrive. That's why Cat is years ahead and these other guys will never catch up.

To juice Cat stocks, management should be talking more about Cat logistics.

RTSmith · 02-12-2009, 03:58 PM

Shows what I know. Never heard about Cat logistics....

Northart · 02-12-2009, 04:35 PM

For the Get Rich Quick speculators, there is the Powerball Lottery, and the OTC Penny stocks in mining,etc.

Also some gullible bit for the Madoff Ponzi scheme, and the Nigerian Emails.

The promise of high returns for low risk, is for suckers. A sucker born everyday, like the Elixir snake oil peddlers used to say.

The serious investor will have a diversified portfolio.

Caterpillar stock does not have the volitility of, say Oil futures stocks that move on news alone.

It is a solid performer with dividends, and appreciable gains in value over the years. It has split 4 times that I know of , since I watched it over the years.

The honest old fashioned values of life , has guided Caterpillar all these years, to 100 years in existence.

Barring a hostile corporate takeover by the Wall Streeter element in todays corrupt banking society. Caterpillar will be around in another 100 years to celebrate it's 200th anniversary .

Stability is a valued stock feature.