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
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!
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.
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
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.
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.
Thanks for all your replies, gentlemen ... I posted a link to this thread from my site so many actual Cat investors will be reading.
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.
What about Deere 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?
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 .
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?
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.
Stock improvements 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.
Shows what I know. Never heard about Cat logistics....
Caterpillar Stock 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. :usa 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.
Cat Stock Tom, How are people looking at Cat Stock now with Cat laying off so many people? Is this the time to jump on some stock or wait and see what Obamma is going to do? Have seen where he wants to tax the Coal so high that it will shut alot of mines down. This can't be good for Cat. dpull
no volatility? At $30, Cat shares are down from over $80 in April. That's a long way down. Most brokers have Cat listed under "Housing Construction". Say what?! Cat management doesn't talk up what they do, and they need to talk more.
I had guessed John Deere was making money on things other than tractors since they closed down our local John Deere ag dealer.
Volitility ? Hello JJ Joseph, I'm used to seeing Cat stock in the $30-$65 range. I know it's been below and above that. I don't track it daily or weekly . We are in a global down turn or recession , and so is every other stock ?? I would think. I can't see no reason to create news events, to pump up a stock just for the traders benefit. I know it is done though. Just the insiders benefit. There are laws against insider trading. Wasn't Martha Stewart convicted of that ? Anyway, aside from that, the stock split history is there,and the dividend history. :usa http://www.cat.com/cda/layout?m=37417&x=7 Caterpillar is a good solid performer. :usa
Cat and Deere stock are buying oppurrtunity right now.
With respect, I disagree. The global agricultural equipment market suffers from less extremes in overall demand than construction equipment, the nature of the business results in slow increases during the good times and slow decreases in bad times. The demand for agricultural machinery is less volatile than construction machinery. Deere and Cat do not make the same type of tractors. Cat makes bulldozers for use in construction and mining, which the traditionalists call track-type tractors. Deere makes agricultural tractors, which Cat do not. Deere’s exposure to the dramatic fall in the global demand for construction equipment is less severe than the other major brands, as Deere is not a major player in the Global construction equipment market (for instance they do not sell their machinery in Europe). As for what Cat could do better; top of the list is to have a full range of excavators; this has been a disaster for Cat, since they have nothing to compete with the other manufacturers (Komatsu, Hitachi, Terex, Liebherr etc) at the top end of the market.
I’m a new member of HEF but would like to make a few comments… First when you say the average age… that leaves a lot of room for speculation. Many of the larger machines would tend to be older while a large number of the small, mini or compact machines would tend to be newer. What I’m saying is that by stating that the average age of equipment is 10 years old, this statement makes the market very appealing from a sales potential; or a good market for investments. If there is a sudden demand for work, like we all hope there will be, then a lot of the equipment will need to be replaced or rebuilt. Certainly a lot of the utility type machines will need replacement. The question then becomes, “ will financing be available.” At the recent World of Concrete Show in Las Vegas, many contractors were commenting on the fact that even if they wanted to buy financing wasn’t available. Cat and other manufacturers have been producing larger production-type machines designed for easier rebuild. At Cat’s last Mining Division meeting late last year, the company was highlighting this fact as one of the ways it is going “green.” What makes Caterpillar number one? The dealer organization is what gives Cat its industry dominance. Other manufacturers have some really great dealers but only Cat has so many dealers that fall into that category. Cat dealers know their business and have learned how to respond to their customer needs. A number of years ago when Komatsu started taking sizeable bites of the equipment market share Cat stepped back evaluated and regrouped. As a result the once Taj Mahal-like Cat dealerships made a radical change as did the entire company. It went from being the “upper crust” to the down to earth. This was about the time they introduced the “Century Line” (under 100 horsepower) machines and started looking at rental. Cat’s dealer rental organization has given it an edge because it helps the Cat dealers stay in close touch with the customers and the dealers have learned how to listen to the customer. If Cat really wanted to juice its stock the first thing it should do is… I have no comments on this. I’m certain that there are things they could do to add market appeal to their stocks but right now it’s going to be hard to beat the marketing value that’s added to their stock by the Stimulus Package and the press they got by the President’s visits. Owens setting the record straight about the rehiring promises is a plus for the company. I have no way of knowing or guessing the percentage of contractors who pay cash for their equipment. Site-K
The trouble is that Caterpillar is first in the firing line for the global backlash against the 'Buy Americian' provisions within the stimulus package. ...this is how our Grandparents generation turned a economic downturn into the great depresion of the 1930s.
Economic Policy ? Hello Dirty Digger, The present economic,energy,financial,etc, policies have brought on the recession we are in. Throwing more money at the same policies ,programs, is not a cure. Some other approach is necessary. The stimulus bill provides $25 a week and extended benefits for the unemployed. Not much relief for those. We already provide $20 Billion in foreign aid to other countries, annually. :usa We have real problems at home that need attention, more so, than worrying about a global backlash at Caterpillar or other major corporations. Anyway, so much for that.
Do the 'Buy Americian' provisions apply to Cat loaders made in Japan or China?
I would think that Buy American would only apply to those items actually made in the states, not overseas. But I was thinking about this conundrum earlier this morning and what the significance might be for a global manufacturer like Cat. How would you break out what "made in America" actually means. Is it something that has only American made parts, or would it include an item made here that has some foreign made parts, but the owning company is based in America? Then what about items that are assembled in America, from nearly all foreign sourced parts by a foreign manufacturer? Personally, I think the worship at the alter of a global economy has been carried too far, in America’s case certainly. I’ve always said that we either drag the rest of the world up to our standard of living, or we will have to reduce our standard down to theirs. This last appears to be the way we are headed. I can’t really speak for others, but I do not like being lowered as I’ve seen first hand just how low that can be. I would not mind seeing high tariffs placed on imported goods, and on items that are produced here by foreign manufacturers. Something that equalizes the playing field you might say. So much of what we buy from overseas is not really necessary to get by on. Most things can still be found made here, or should there be a vacuum, it would be quickly filled by some enterprising American business. This may lead to some charges of protectionism by other countries and what some would call retaliation by those countries. But I think America can stand it better than they can, and we already see so much of this happening in foreign markets, particularly in the Orient, Africa, and Europe. Not saying that we cut ourselves off completely from the rest of the world, mind, but we really need to start taking better care of ourselves, and that means we can not let all manufacturing go off-shore and ourselves become mostly a service, consumer, or government supported society.
Caterpillar would suffer if the 'made in America' rules were imposed. Fair enough, they may get some short-term gains from an increase in demand from American customers for products that they make in the USA, but this will be balanced against them loosing out to competitors who make certain classes of product in the USA (which Caterpillar manufacture overseas). However, the main downside would be a weakening of overseas markets for Cat's American-made products. Officials in the administration and in Congress believed that raising trade barriers would force Americans to buy more goods made at home, which would solve the nagging unemployment problem. But they ignored an important principle of international commerce: Trade is ultimately a two-way street; if foreigners cannot sell their goods here, then they cannot earn the dollars they need to buy here. Or, to put it another way, government cannot shut off imports without simultaneously shutting off exports. (referring to 1930 Smoot-Hawley Tariffs, from www/fee.org) I also have been pondering the consequences of the 'made in America' ruling. Terex couldn't supply any trucks or scrapers to such projects, I can't think who would supply mini excavators; there must be many more anomalies that this ruling would create. Come to think of it, finding a 20-tonne excavator might be a bit of a problem. Help me out guys, apart from Hitachi/Deere, who else makes a 20-tonne tracked excavator in the USA?
I too respectfully disagree. Although Deere is not currently a world leader in construction equipment, they are a clear #2 in North America. In 2008 the construction and forestry division of Deere had $4.8 billion in net sales, of which nearly 90% came from sales in the US and Canada. Still, not nearly what Cat is world wide but nothing to sneeze at either. If you ask anyone in Peoria who their main competitor is in NA they will say Deere. As for Deere not making bulldozers you should check out Deere's website to educate yourself on Deere's line of construction equipment. There are a few Komatsu Cat...I think but not sure Kobelco New Holland Volvo Sany...coming soon
Prior to the current collapes of the economy, many had become used to running new iron and keeping a newer fleet, a habit easy to get into coming off of a decade of mostly solid growth. That practice has caused many, some extreme discomfort right now. I would have agreed with the idea that many will be anxious to upgrade their fleet after this slow down. However, those who still have a place to sit when this music stops, are not likely to repeat the mistakes of the past, at least not until the pain of the current problems fade from memory which wont be anytime too soon. You will see much greater care in the aquisition of equipment I think. The fact that money will cost more and be harder to get will also have an impact. CAT's marketshare will continue to take a beating along with its share value. The competition has gotten much better in the last couple decades and CAT has not. Equipment owners are more willing to explore nonCAT options which is why you see more mixed fleets then ever before. Having Cat equipment used to be a status symbol in the industry. The culture that formed that belief is disappearing. No one OEM has exclusive rights to making the very best equipment across its entire product line and CAT is no exception. Other OEMs, largely from following CAT's lead, have made major improvements in service and organization. This has made other OEM's a viable option for many contractors. I also believe that CAT dealerships took advantage of the relationships they created with contractors. This has pushed many owners, to diversify their fleet. The reasons to stay all CAT have largely melted down to emotional and sentimental reasons. That does not pay the bills. Financing will always play a major role in equipment purchases. Flame suit on.:cool2
Products ? Hello KSSS, I thought Caterpillar was already responding to the marketplace demands. The product count from 40 ? after WW2 to lately 700 ? Hope I got that # 's right ! Geez the Caterpillar Performance Handbook ( Condensed Catalog ) has gotten from 1/4" thick catalog ,31 pages to a 2" thick Catalog of 1000 Pages ?:usa What is so good about the competition ??? LOL
I think that you have proven my point on Deere, they may be very strong in their home construction market, but a minor player in the global construction equipment market. As regards Deere's Dozer range, I didn't say that they didn't produce dozers, but now that you have raised this point, how many models are actually a Deere design and built in-house, and how many are Liebherr's painted a different colour? (when talking about 20-tonne excavators) I'm not sure if Cat 20-tonners are built in the USA. However, the point I was trying to get to was that the 'buy American' provisions will have Asian businesses celebrating. Komatsu, Hitachi, Kobelco and Samsung will all be happy that their American factories and distribution networks have this bonus, while the American management of traditionally American companies (Cat, Case, Link-Belt and Terex) will be sulking as they can not supply a 20-tonne excavator under these provisions.
450 - 850 are Deere designed and built. 950 and 1050 are Liebherr. It also goes the other way with the Liebherr 714. This is an exported Deere 700 painted Liebherr trade dress. My point is that that Deere produces more than just ag tractors. I agree with your point in that this allows Deere to weather the construction storm a little better than Cat. It also allows the overal financial performance of Deere to look better as the ag market goes up and down with the construction market. Typically these two market segments are out of phase with one another...providing a nice balance in machine shipments for the total company.
I 100% agree with you, it is the out-of-phase cycles of agricultural and construction equipment demand that is a big plus point for Deere and the old Case (pre-CNH) business. But, to go back to the posters original question, Caterpillar is in a different boat, but they have done well to diversify. As an example, their logistics deal with Land Rover ticked all the right boxes and I think their move into tunnel boring machines will pay huge dividends in the future. Fair enough TBMs are still construction equipment, but it gets Cat locked into long-term strategic projects, not work that is subject to short-term local economic fluctuations. I think that one of the big points in Cat's favor is their leadership in hybrid-drive (diesel/electric) technologies. Komatsu probably heads the Japanese competitors, with a 20-tonne hybrid excavator about to hit their home market. Volvo heads the European assault on new technologies, with a hybrid wheeled loader at prototype testing stage. Caterpillar was the first to have a working hybrid-drive machine in a reasonably public area (their dozer, just before last years Conexpo show). Their recent announcement on hybrid mining trucks takes them another step towards the drive system of the future.
ILOVE CAT MY COBANY ONS ALL CAT BUT TO YOU REALLY KNOW WHAT CAT MEANS CAN'T AFORD THAT BUT WE ARE STILL BUYING CAT AND I love them but now days they are the same but my heart is always with cat
Can not agree point 2 any more! I don't know CAT sell status in other place but in China, it did as this, first negotiation is depend on the relationship between dealer and end-user, then an acceptable price will be successful ending. Not only CAT, but also Komatsu,Terex,etc. It seems a trend for off-highway truck selling. Then high maintain cost need to pay for high price spare parts.The truck makers are more trading company than manufacturer to end-user