Goldman Raises Estimates for Caterpillar.
Justin Rohrlich July 6,
2010 3:40 PM|
outlook has no factual basis, others say.
raised its estimates today for Caterpillar
(CAT) through 2012, noting that “North American demand
for its equipment should escalate soon.”
a $70 price target on the stock.
is also bullish on itself, revising its sales and revenues
forecast to $38 billion-$42 billion, as well as revising
its 2010 profit forecast to $2.50-$3.25 per share.
Caterpillar’s 10Q for the first quarter of 2010, CEO
James Owens states:
The main driver behind our improved outlook is robust
growth in Asia/Pacific and Latin America and continued
improvement in mining and energy globally. We are increasing
production schedules and expect sales to improve as
we move through 2010. We expect to continue to add employees
around the world to support growth and in the United
States to support growing exports. We have seen a marked
increase in demand for mining equipment -- a result
of continued strong commodity prices and growing confidence
in economic recovery. We have also seen improvement
in sales of aftermarket service parts, which is usually
an early indicator of growing demand for machines and
Hackett, president and CEO of Hackett Financial Advisors,
a money management firm with a specialization in commodities,
isn’t surprised that Owens has such a sunny point of
view; he tells Minyanville that “a CEO’s job is to be
the best salesman in the company.”
A CEO isn’t going to get on a conference call and tell
you everything’s falling apart. And when they put up
lousy numbers later on, they’ll tell you, "We got
blindsided; we didn’t see it coming." Right now,
I see no signs of a cyclical economic recovery whatsoever,
in the US or globally.
Why the disparity
between Caterpillar’s outlook and Hackett’s?
CAT says the world is coming to an end, and sell when
CAT says things are great. CAT’s talking about what
they see in the rearview mirror. Things were looking
up because of the artificial demand created by the US
government. As soon as those levers are taken away,
you’ll see that there’s no real cyclical demand. China?
China has flooded their economy with money, but in reality,
China’s economy is no better off than it was when we
saw that trough in March of '09. The only thing that
can keep this system going is another dose of leverage.
However, at some point, if a drug addict takes too much,
he ODs and dies. We have to let the economy clean itself
out from its drug -- too much leverage. I have no idea
what Ben Bernanke or Barack Obama or China are all going
to decide to do, but we are decelerating, the money
supply is collapsing, and the velocity of money is not
going anywhere. That is not a symptom of a global robust
economy. It’s probably a sign of an economy that’s already
back in recession, we just don’t know it yet, since
it takes some time for those numbers to make sense in
hindsight. Six months from now, almost assuredly, things
are going to look terrible again. Good numbers now are
likely a temporary peak in this cycle.
also points out that cyclical companies like Caterpillar
are generally not the best sources for an accurate economic
I wouldn’t be buying cyclical stocks right now. Mining
has been driven by industrial metals going through the
roof. Copper just collapsed. The Baltic Dry
Index is collapsing because demand for freight
is going down. Why? Because demand for industrial commodities
are going down. I like to look at what the Economic
Cycle Research Institute is saying. They have one of
best track records for determining future economic activity
-- collapsing. The adjusted monetary base -- collapsing.
The money’s not going anywhere. No growth. All the money
in the economy is going toward debt reduction. I believe
we’re heading for a serious slowdown that will come
to a head in the fall. It could be an extremely ugly
period for capital markets.
that, right now, the smart money is going to “things
that are not cyclical.”
to be investing in things that are necessities of life,”
he says. “Food, agriculture… they’re now undervalued
because everyone’s been trying to buy the cyclicals.
Remember, you have to eat. Commodities like milk, rice,
grains are where I’d be.”
for stocks, Hackett has his eye on supermarket chains
and food companies.
Weis Markets (WMK) is a stock I’m liking
right now. And, in general, a lot of money is going
to rotate into companies like Smucker’s
(SJM), Altria (MO), Sara Lee
(SLE), until the economy straightens itself out. CAT
doubled over the past year, why would I want to buy
that now? Everything’s a pendulum. Is this current move
sustainable? If it isn’t, as I believe, then ignore
the good news because it’s not going to stay that way.
This isn’t an irrational idea, especially in cyclical
stocks. CAT was trading in the $70-$80 range during
the last global economic peak. Today, it’s around $60.
Not too far off from the last peak, and we all know
the global economy is nowhere near what it was back
then. What’s CAT doing up this high? CAT has no business
being at $60. Investors think we’re in a V-shaped recovery.
Not happening this time around -- too much leverage
in the system. It will be a garden-variety recovery.
Remember, in every market there are always two sides.
For every buyer, there’s a seller. There’s always a
counterparty that thinks you’re a fool. Will I be proven
a fool? Could happen, sure. But I doubt it.
trader Jeff Macke agrees wholeheartedly with Hackett’s
outlook is pretty weird when you have a slowing economic
environment,” he says. “If we’re double dipping, or
really, just continuing to dip -- as we haven’t exactly
turned up -- it makes no sense. I almost got booed off
the stage for pointing that out about shipping and ag
in 2008. Go look at the five-year chart on DryShips
(DRYS) right now and tell me if that booing was warranted
As for Goldman
raising its estimates?
Sachs doesn’t make money by telling everyone what they’re
going to do in advance,” Hackett says. “Whatever they
think of CAT at this point, I’d bet they’re already
out of it and onto the next thing.”
does Caterpillar itself have to say about it?
spokesman Jim Dugan told Minyanville that the company
doesn't comment on upgrades or downgrades.
puts out a detailed report every quarter and we prefer
to let the numbers speak for themselves. Others can
interpret those figures however they like.”