Avoid Caterpillar While the Dollar Is Strong, Global Economy Is Slow

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One of the world’s biggest industrial equipment manufacturers, Caterpillar Inc. (NYSE:CAT), not only came in with bad numbers for yet another quarter but also lowered guidance for 2015.

caterpillar_185x185Caterpillar is now expecting revenue to be off 10% year over year in 2015.

While officials are saying it is all about cheap oil and a sluggish global economy, it’s a really a bit more than that.

CAT is a bellwether for the health of the global economy. Since Caterpillar makes construction and mining equipment, it’s tied very closely with global growth, or put another way, commodity prices.

When demand for new construction is high, demand for raw materials is high, and that means industry is buying equipment from CAT. When demand is low, equipment demand is low.

Here’s a chart that will give you a clear idea of what’s been going on with CAT for some time now — sales are tanking. And nearly 60 percent of CAT’s business is outside the US.

CAT-Dec-2014-region

This is a double whammy since it means that those outside sales are hurt by converting overseas sales from weak local currencies to strong dollars. And, since most countries are experiencing slow-growth economies, there’s no money or room to expand (i.e., buy construction and mining equipment).

This kind of trend is likely why Caterpillar did a stunning $4.2 billion stock buyback last year. But it’s going to be hard to keep investors happy that way. CAT is going to have trouble as long as the global economy is in trouble.

And this has significance beyond just CAT. It’s also why we saw the markets sell off when oil went through the floor. It may seem contrary, since cheap oil on its face would seem like such a good thing, but there’s no point in filling up the tank if there’s no work to do. And if there’s no work, there’s no money, whether you’re an individual or a company.

Caterpillar’s downward trend implies that 2015 is not going to be a good year for earnings, for many multinationals. For example, Proctor & Gamble Co (NYSE:PG) just announced its core profit in the last quarter was down 14% because of the strong dollar. PG also reduced guidance for 2015 on sales by 5% and earnings by 12%. More than 60% of Proctor & Gamble’s business comes from countries outside the U.S.

Until the global economy gets on better footing, avoid big companies that derive their incomes from outside the U.S. and companies that are tied to commodities or commodity-based economies.

The U.S. is only real engine of growth in the world right now, and even its growth is hamstrung by Asia and Europe’s current woes.

Stick with companies that focus on U.S. demand for now and not companies like Caterpillar.

Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip GrowthEmerging GrowthUltimate GrowthFamily Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.


Article printed from InvestorPlace Media, https://investorplace.com/2015/01/caterpillar-cat-stock-strong-dollar-dollar-global-economy/.

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