5 Stocks For The Long-Term: Stock #5

Caterpillar, Inc. (CAT) is the fifth and final stock you should be looking at for the long-term. This stock has been beaten to within an inch of its life because the implosion of the housing market. This company produces construction equipment, mining equipment and engines that run on diesel and natural gas. Many investors view this company as dependent on the housing market, particularly new home sales to drive its revenue. Less than 10% of this company’s revenues are actually tied to the housing market. This is a company that is involved in many different markets and because of the overselling of this stock over the past year, it is currently sitting at a bargain price.

It is currently trading a few dimes shy of $30, which is a few bucks off its low of about $21 and change. Its 52 week high was in the mid-$80’s, which I think was a little too high, but it was still riding the housing high that started in 2004. The current dividend yield is 5.7% and the EPS is at about 5.5, which is extremely low for this company. Also, the dividend has been increased each and every year since 1992, with no missed dividend disbursements. Through thick and thin, this company always delivers that all important dividend.

Three catalysts will drive this stock back up. First is the Stimulus Plan. A major part of this plan is to create jobs by strengthening the country’s infrastructure. Once this gets started, equipment sales should skyrocket. This, however, is contingent on the second catalyst, which is the loosening of the credit market. Once financing is available, Caterpillar’s customer base (the ones who survived the debacle) will start purchasing at the same levels they were before the economy went bust. These guys will be trying to boost their production and grab up market share left by the ones who had to shutter their operations. Lastly, the housing market will turn around (assuming the credit market loosens) and all the bums who thought this company was dependent on the housing market will begin buying up shares.

Two big red flags for this company is that currently it is loosing money, but that will be short-lived when the three catalysts kick in and the second is the $30+ billion in debt it currently has on its books, with only $1.5 billion in cash. If the growth prospects for this company weren’t so great, I would normally steer clear of a balance sheet like that. This baby has nowhere to go but up, however, be cautious, because it could still dip a few bucks. Again, this risk can be reduced by buying in slowing and building a position while the stock is underpriced. Remember, this company should not rise at the same rate it declined in the fall. Be patient and think with your head and put your emotions on the back burner. Actually, take your emotions and put them in the garbage and take the garbage out to the curb. They have no place here!