Caterpillar: A Rebounding Economy Play
The First Call FY2009/FY2010 EPS estimates for CAT are $2.01 to $2.72. That $2.72 FY2010 EPS estimate will likely prove to be low.
Additional positives: A further weakening in the U.S. dollar would boost CAT's international sales by making the company's products cheaper for foreign buyers. A second fiscal stimulus package by the U.S. government (possible) would represent another plus.
Technically, Caterpillar's stock chart is strong -- an uptrend and a price that continually stays above the 50-day moving average -- a sign that institutional investors are adding to and establishing positions in the stock. Further, CAT recently re-tested psychological resistance at $60. According to my analysis, CAT is headed much higher.
2010 Outlook: Caterpillar is a long-term play, but if you're looking to sell CAT within the year, take your profits after it rises to $77 to $79, if it fails to clear $80.
Stock Analysis: Caterpillar is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in CAT now; then buy another 25% in one month, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your CAT position before March 2010. Sell/Stop Loss if you were to buy shares in this company: $33.50.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.