From Briefing.com
Caterpillar (CAT) 44 13/16: With the year coming to a close it is time again to take a look at the dogs of the DJIA... For years investing in the 5 lowest priced of the 10 highest yielding DJIA stocks has been a relatively simple way to outperform the bellwether index... Historically, investors have been able to improve their results by simplifing the process to buying the second lowest priced of the ten highest yielders (for more on the dogs of the DJIA theory see today's Stock Brief)... This year that stock is Caterpillar ... As you might have guessed the stock is trading just above its 52-wk low of 42...But the again that's the whole idea behind the dogs of the DJIA theory - buy this year's loser(s) in hope that it stages a strong recovery over the next 12-months... So aside from being at the wrong place at the right time, what else does CAT have going for it? From a short-term perspective, not much (aside from being on Dow Dogs list) In mid-November, company issued an earnings warning placing results about 35% below consensus estimates (helping to explain why stock is near its lows)... Tough pricing conditions and lackluster sales providing the one-two punch to the bottom-line... Looking a little further out, Briefing.com contends that a solid foundation is being built for a recovery... Lousy earnings in FY99 make for soft comparison periods in FY00... Another by-product of the compnay's FY99 woes is that more than half the analysts covering the stock (13/24) give it a neutral/hold rating... In other words, if CAT sees any signs of improvement in its results, or better yet delivers a positive earnings surprise, street will be quick to raise ratings and forward estimates, which will be very bullish for the stock... Considering the growing strength in the global economy, Briefing.com maintains that prospects are good for a rebound in the sluggish construction and agricultural machinery markets... More favorable industry conditions should also result in improve pricing conditions, though potential competition from Deere (DE) in the construction market could limit upside here... Nevertheless, even modest improvement will be welcomed... CAT has also been streamlining operations during the past couple of quarters... As such it is well positioned to leverage even modest top-line growth into solid bottom-line growth... According to Zack's, CAT projected to earn $3.27 in FY00, up from $2.65 in FY99... Estimated p/e of 13.7 is in about the middle of the stock's 5-yr range, though it is well below both market p/e and modestly below the industry average... CAT also trades at 0.78x trailing 12-mo sales, with an ROE of 19%... Briefing.com's initial price target is in the 55-58 range. --RW
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