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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: cpabobp who wrote (10817)	6/29/2000 6:57:00 PM
From: James Clarke	Respond to of 78915

<<I might be the only one to see that [CAT's] business should grow with a slight recovery in the farming industry as well as the strong heavy highway business.>> No, there's two of us. Farming isn't the story though it may be a small part of it. Highway, mining and oil & gas are. These are three businesses which are big drivers of CAT earnings which are virtually guaranteed to grow from here. But all anybody focuses on is housing construction, as if that is all CAT does. CAT makes its big margins on mining equipment and energy related engines. They also have a rapidly growing engine business related to standby power - the same thing that is now being hyped in Emerson. The valuation discounts a recession, I bet if you asked portfolio managers 2/3 would say CAT's earnings are at a peak even though they peaked in 1997 and are off 40% from there. The biggest reason to buy CAT now is that third and fourth quarter earnings should be well above expectations. Simply because CAT took down inventories significantly in the second half of last year. i.e. underproduced retail demand. So follow my logic, even if retail demand is down a little bit this year, holding inventories constant, production will be up a lot. CAT's margins are based on production levels, not retail demand. And CAT goes up alot when margins expand. If I want to dream of riches, I ask myself what happens if retail demand turns up. Then inventories have to increase and production (= margins) explodes to the upside. CAT's domestic retail sales have been down for 16 straight months. At some point that turns around. I have a large limit order in on CAT which hasn't hit yet. Hope I'm not being too greedy on my price that I miss it. Trinity - there is no reason to buy it except that it trades for half what it is worth and has a rock solid balance sheet. That's reason enough for me.