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Caterpillar Inc. (CAT) Is Being a Dog, but Not for Long

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Caterpillar Inc. (NYSE:CAT), the world’s largest manufacturer of construction and mining equipment, reported record earnings in 2012. Its stock has fallen over 12% since Feb. 1 on economic worries and disappointing sales numbers. I believe the selling is overdone and Caterpillar Inc. (NYSE:CAT) is about to rise over 10%.

Caterpillar (NYSE:CAT) Trying to Spark a Flatlining Dow

The drop

The decline in February began after news that U.S. productivity declined 2% in December. Caterpillar relies on economic growth to build demand for its products. The stock continued to fall even after sales for the three months ended in February were announced.

The dismal statistics were:

Global sales decreased 13%

North American sales decreased 12%

Asia/Pacific sales decreased 26%

Europe/Africa/Middle East sales decreased 9%

Latin American sales increased 3%

These numbers are compared to the three months ended in January, and it was about as bad as it could have got for Caterpillar Inc. (NYSE:CAT). Management stated this steep decline was due to “weak demand” and “oversupply,” but I believe they will get it under control before the next report.

A record year

2012 was an incredible year for Caterpillar:

Revenues increased 10% to approximately $65.9 billion

Profit per share increased 15% to $8.84

Increased its dividend for the 19th consecutive year

This is a great year, but what sticks out to me the most is the 19 straight years of dividend increases. This shows that management is dedicated to increasing shareholder value, a huge positive for the stock. Currently, Caterpillar Inc. (NYSE:CAT) pays out $2.08 annually, or 2.4%. I believe the dividend will continue to grow, making this both a growth and dividend play.

Industry outlook

There are several positives for the mining industry going forward:

Imports of seaborne thermal coal are expected to increase steadily throughout Asia and Europe

Global steel production is expected to continue to rise in 2013, which means there will be a higher demand for metallurgical coal and iron ore

The global demand for copper is expected to grow, mainly due to China’s improving economy

All of these factors will push sales higher over the next several years and eventually to another record year. China held mining back in 2012, but this does not seem to be a continuing theme for 2013 and 2014. Europe is still having issues, but I believe this is the bottom, so it will all be easier treading from here.

Expectations

Through 2015, Caterpillar Inc. (NYSE:CAT) is expected to grow earnings 25.2%. This is not the greatest rate for a three-year span, but it’s the expectation with the current economic climate factored in. Caterpillar has exceeded analyst estimates in five of the last six quarters, so you cannot take these numbers as 100% accurate. I believe Europe’s economy has bottomed and China’s will continue its rebound, causing major demand in the mining industry.

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