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Caterpillar Inc.: Wait for the NEXT Dip in CAT Stock

Shares of the construction and mining equipment maker Caterpillar Inc. (NYSE:CAT) bombed 7% Tuesday after the company reported-weaker-than-expected results for the fourth quarter and full year.

With that kind of dip, we should talk about whether this is an investor opportunity … but first, a quick look at the Caterpillar earnings report.

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Caterpillar Earnings

Caterpillar announced fourth-quarter sales of $14.24 billion, just better than expectations of $14.18 billion, but below the $14.4 billion reported in the year-ago period. Meanwhile, Caterpillar earnings were much lower — the company posted adjusted profits of $1.35 per share of CAT stock, down 25% year-over-year and way off the Street consensus mark of $1.55 for the quarter.

For the full year, Caterpillar earnings came in at $6.38 above the $5.97 it reported for 2013, but revenue was light at $55.2 billion compared to $55.7 billion.

All in all, the results were not great, but it was managements forecasts and forward looking statements that really sent Cat stock down more than 7%, which in turn has cut about 40 points off the Dow Jones Industrial Index.

Management expects $50 billion in sales and earnings of $4.75 per share for 2015. Consensus was that Cat would report revenue of $54.83 billion and earnings of $6.67 per share for the year.

Should You Buy CAT Stock?

It’s possible Caterpillar’s management is forecasting at the extreme low end of what it truly believes it will do in 2015, hoping to clear the low bar later down the road. But even so, investors should not take today’s price decline as an opportunity to buy CAT stock.

Caterpillar CEO Doug Oberhelman stated that the decline in oil was the biggest reason for the weak forecast in 2015. Furthermore, management felt the slow growth in the world economy and low commodity prices — particularly in oil, copper, coal and iron ore — would hurt sales.

When we look at Caterpillar’s three main business units, they all revolve around commodities; Construction, Resources, and Energy & Transportation. If copper, coal and iron ore prices are high, that likely indicates global construction is increasing or even booming, and therefore CAT’s Construction and Resources businesses are healthy. The same goes for oil and gas prices and Caterpillar’s Energy & Transportation segment.

But healthy is certainly not what we seeing today.

At $46 per barrel, oil prices are now less than half where they were six months ago. Iron ore and copper both hit fresh five-year lows yesterday — iron ore futures fell to 470 yaun in China, and copper is trading at $2.46, down from well above $3 just months ago.

With no end in sight for low commodity prices and the miners themselves even beginning to announce capital spending cuts — for instance, Freeport-McMoRan Inc (NYSE:FCX) reported that it would reduce its budget for mining and oil/gas projects by $1.5 billion — 2015 is going to be a challenging year for CAT stock.

Investors should remember is that commodities are cyclical, and while many of them are heading south now, it’s reasonable to expect they’ll at some point rise again. When that happens, CAT stock will be among the prime beneficiaries.

However, for now, we’re seeing few catalysts for such a turnaround in any of the commodities weighing on Caterpillar. And that means investors likely will be able to buy CAT stock even cheaper in the future.

For now, just be patient and wait for a combination of improved global growth forecasts and a rebound in commodities such as copper, coal, iron and oil before jumping into CAT stock.

As of this writing, Matt Thalman did not hold a position in any of the aforementioned securities.

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