Is Caterpillar Inc. (CAT) Smoke and Mirrors?

For those who still want to consider investing in the industry, dividend yields might play a role in your decision. Caterpillar currently yields 2.90%, Deere & Company (NYSE:DE) yields 2.40%, and Joy Global Inc. (NYSE:JOY) yields 1.30%. However, it’s rarely a good idea to chase yield in a suffering industry.


Due to weak demand and a reduced backlog, Caterpillar Inc. (NYSE:CAT) is doing everything it can to even out its supply-and-demand picture. As stated above, it’s cutting costs and returning more capital to shareholders. Can this work for a short period of time? Yes. Is it possible that bad news is priced in? Maybe.

However, that shouldn’t matter. It’s unwise to invest in a company simply because bad news is priced in. Instead, consider investing in companies that are growing and increasing market share.

Caterpillar will be around for a long time, and it’s likely to be a strong performer down the road, but that time isn’t likely to be in the near future. If the Federal Reserve is fighting deflation, and it must eventually halt or at least slow monetary stimulus, then it’s only a matter of time before nature takes its course. Once deflation sets in, commodities will suffer greatly, which would negatively impact Caterpillar.

Dan Moskowitz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Dan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Is Caterpillar Smoke and Mirrors? originally appeared on and is written by Dan Moskowitz.

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