CAT is On Its Last LifeCaterpillar is known for being a global economic bellwether, and considering it recent stock performance you'd think economic activity is alive and well.
Unfortunately, this is not the case. In fact, despite CAT "beating" its recent Q3 earnings estimates (which rely heavily on accounting gimmicks), the global mining and construction company reported that all is not well while lowering its forward guidance.
Chairman and C.E.O Doug Oberhelman said "economic weakness throughout much of the world persists and, as a result, most of our end markets remain challenged." He further went on to say, "in North America, the market has an abundance of used construction equipment, rail customers have substantial number of idle locomotives, and around the world there are a significant number of idle mining trucks."
It's important to know that global sales have contracted for nearly three straight years, and trouble with their business began once the massive commodity bubble began to pop in 2011.
CAT v Deutsche Bank Tracked Commodities
The fundamentals prove negative for the stock going forward. At 47.93x trailing 12M earnings, the stock is grossly inflated over its 5-year average of 16.93 - where many of the company's industry peers currently reside.
We currency foresee further weakness throughout the global economy, especially in China. Although, the Chinese government is fight tooth and nail, running deep monthly budget deficits, we do not expect China to regain its previous growth expansion before a financial crisis breaks out - PBoC boots net liquidity to the financial sector by 1.06 trillion CNY, or a 2,022 percent increase YoY.
The People’s Bank of China has increased net liquidity to the financial sector by a staggering +2,022% year-to-date, to 1.06 trillion CNY.
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