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Hedge Funds Are Selling Caterpillar Inc. (CAT)

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Caterpillar Inc. (NYSE:CAT) was in 33 hedge funds’ portfolio at the end of the fourth quarter of 2012. CAT investors should be aware of a decrease in support from the world’s most elite money managers lately. There were 37 hedge funds in our database with CAT holdings at the end of the previous quarter. This is important, because just today Credit Suisse decreased the price target and estimates on earnings for Caterpillar Inc. (NYSE:CAT).

Caterpillar Inc. (NYSE:CAT)

If you’d ask most traders, hedge funds are perceived as unimportant, old financial vehicles of the past. While there are over 8000 funds trading at present, we at Insider Monkey look at the upper echelon of this group, around 450 funds. It is widely believed that this group has its hands on most of all hedge funds’ total asset base, and by monitoring their best picks, we have found a few investment strategies that have historically outstripped Mr. Market. Our small-cap hedge fund strategy outstripped the S&P 500 index by 18 percentage points a year for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have outperformed the S&P 500 index by 24 percentage points in 7 months (explore the details and some picks here).

Just as important, positive insider trading sentiment is another way to break down the world of equities. Obviously, there are lots of incentives for a bullish insider to get rid of shares of his or her company, but only one, very clear reason why they would buy. Plenty of empirical studies have demonstrated the market-beating potential of this strategy if piggybackers know where to look (learn more here).

With these “truths” under our belt, we’re going to take a look at the key action encompassing Caterpillar Inc. (NYSE:CAT).

What does the smart money think about Caterpillar Inc. (NYSE:CAT)?

In preparation for this year, a total of 33 of the hedge funds we track were bullish in this stock, a change of -11% from the third quarter. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes significantly.

According to our comprehensive database, Bill & Melinda Gates Foundation Trust, managed by Michael Larson, holds the most valuable position in Caterpillar Inc. (NYSE:CAT). Bill & Melinda Gates Foundation Trust has a $919.2 million position in the stock, comprising 5.5% of its 13F portfolio. The second largest stake is held by Renaissance Technologies, managed by Jim Simons, which held a $120.4 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Remaining peers that hold long positions include D. E. Shaw’s D E Shaw, Phill Gross and Robert Atchinson’s Adage Capital Management and Donald Chiboucis’s Columbus Circle Investors.

Due to the fact that Caterpillar Inc. (NYSE:CAT) has experienced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there were a few hedgies that decided to sell off their positions entirely last quarter. At the top of the heap, John Murphy’s Alydar Capital said goodbye to the biggest investment of the “upper crust” of funds we track, totaling about $24.6 million in stock.. Peter J. Eichler Jr.’s fund, Aletheia Research and Management, also dumped its stock, about $23.3 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 4 funds last quarter.

What have insiders been doing with Caterpillar Inc. (NYSE:CAT)?

Insider purchases made by high-level executives is at its handiest when the primary stock in question has seen transactions within the past half-year. Over the last 180-day time frame, Caterpillar Inc. (NYSE:CAT) has seen zero unique insiders buying, and 5 insider sales (see the details of insider trades here).

Let’s also examine hedge fund and insider activity in other stocks similar to Caterpillar Inc. (NYSE:CAT). These stocks are Terex Corporation (NYSE:TEX), AGCO Corporation (NYSE:AGCO), Joy Global Inc. (NYSE:JOY), CNH Global NV (ADR) (NYSE:CNH), and Deere & Company (NYSE:DE). This group of stocks are the members of the farm & construction machinery industry and their market caps are closest to CAT’s market cap.

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