Is Caterpillar on the Cliff's Edge?


Stocks made small gains today during a low volatility session, with the Dow and the broader S&P 500 both up 0.3%. I expect that investors are waiting to see tomorrow's nonfarm payroll numbers.

Fiscal cliff watch: If you're still getting up to speed on the fiscal cliff and its implications for investors, do not pass go, head straight to 4 Questions to Understand the Fiscal Cliff. In that article, I highlighted that the threat of that outcome is already impacting the way businesses operate, despite the fact that the direct economic toll of going over the "cliff" on December 31 would be progressive rather than immediate.

The CEO of Dow component Caterpillar won't disagree with that. In an interview with CNBC today, Doug Oberhelman attested: "I talk every day to our customers around this country, and they're all scared to death [of] what happens in January," adding that "we're already looking at [capital expenditures] for next year -- what could we, and should we, do if things really start to slow down."

What does that mean for Caterpillar investors? The Motley Fool industrials analyst Brendan Bynes recently wrote that "the potential for a macroeconomic slowdown appears adequately priced into Caterpillar's stock price, especially considering its strong growth potential." To get his full assessment of the opportunity that the shares represent, click here to receive our premium report, which includes a full year of ongoing coverage.

The long view: Thirty-eight years ago to this day, on December 6, 1974, the bear market of 1973-1974 finally bottomed, based on the closing values of the Dow, at 577.60 - a 45% haircut to the high it achieved in January 1973. This brought the index back to a level it had already achieved almost 16 years earlier, in December 1958 (and that doesn't even account for the effect of inflation.) Stocks for the long run!

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Alex Dumortier, CFA has no positions in the stocks mentioned above; you can follow him @longrunreturns. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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