In the last few weeks, both Bank of America Corp (NYSE:BAC) and JPMorgan Chase & Co. (NYSE:JPM) downgradedDeere, which means much of the weakness surrounding the company might be already priced in. Caterpillar’s current dividend yield is 2.9% and Deere’s dividend yield is 2.5% which is another indicator that the two companies enjoy similar valuations.
Moving forward, Deere should be a little better positioned than Caterpillar due to its exposure to the farming market. The company is expected to grow by a high-single-digit rate this year, giving it a forward P/E that’s right under 10.
Speaking of the mining industry
Speaking of weaknesses in the mining industry, one of the hardest hit industries is the gold-mining industry. IAMGOLD Corp (USA) (NYSE:IAG) is one of the companies that was sold-off aggressively in the last few months as the price of gold was in free-fall. IAMGOLD Corp (USA) (NYSE:IAG) currently trades for 8 times past earnings and the company’s cash reserves total $762 million, which is more than one-third of the company’s market cap of $1.9 billion. Excluding cash, IAMGOLD’s P/E ratio would come down to levels below 6.
Keep in mind that the company also has plenty of gold in its reserves and since gold is a currency, it could be added to its balance sheet as cash too. IAMGOLD is also a generous dividend payer with a yield of 4.9%. As the gold price stabilizes (and possibly recovers), this company will attract more investors. The company enjoys a few large mines with strong yields and it has enough cash to withstand the difficult gold market for the time being.
I expect IAMGOLD to hold onto its gold reserves for now and start offloading them once the prices increase. Recent cost-cutting measures implemented by IAMGOLD will provide the company with some protection in case the price for gold goes even lower.
Conclusion
In conclusion, Caterpillar warrants some caution because the mining industry is going through some weakness at the moment due to low demand for mined goods. Deere may be better protected from a weak mining market due to its exposure to a relatively strong farming market. Finally, those who are considering getting exposure to the mining market before a possible turnaround can find a lot of value in IAMGOLD.
The article Caterpillar Warrants Some Caution originally appeared on Fool.com and is written by Jacob Steinberg.
Jacob Steinberg owns shares of IAMGOLD. The Motley Fool has no position in any of the stocks mentioned. Jacob is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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