Caterpillar Poised To Reap Benefits Of Market Turnaround

Sep.29.11 | About: Caterpillar Inc. (CAT)

I have written previously on Caterpillar (CAT) and have been puzzled of late on the stocks flat trading trending down over the last 30 days. Like many other investors who favor the stock, the company seems to have been unduly punished during the latest bout of market panic selling, and I remain confident that it currently represents a bargain against its intrinsic value.

Continued Growth

While concerns exist regarding ongoing support and demand to China, this is not going to dry up overnight, and even if there is a reduction in the annualized growth of construction in China, demand will continue to progress steadily. The rate with which China needs to build cities and develop its infrastructure will ensure continued demand for CATs equipment and technology for years to come (noting China accounts for 50% of global construction equipment demand). In terms of CAT’s growth domestically and abroad, its key plans and programs are summarized below:

CAT - Domestic and Global Growth Lines
USA
Capacity expansion for mining trucks in Illinois
New lower powertrain facility in North Carolina
Expansion of Building Construction Products facility in North Carolina
New engineering design center in South Dakota
New excavator facility in Texas
New Progress Rail facility to manufacture locomotives in Indiana
New parts distribution center in Washington
Expansion of remanufacturing facility to support mining in North Dakota
GLOBAL
Capacity expansion for mining trucks in India
Significant increase in excavator capacity in Xuzhou, China
New facility for small wheel loaders and backhoe loaders in Brazil
New mini-excavator facility in Wujiang, China

New Logistics Center in Suzhou, China

New facility to produce 3500 series engines in Tianjin, China
New remanufacturing facility in Singapore
New facility for underground mining articulated trucks and loaders in Thailand
New facility for medium track-type tractors in Thailand
New facility for undercarriage components and track assemblies in Xuzhou, China
New proving ground and large wheel loader facility in Tongzhou, China
Click to enlarge


This growth is represented graphically in the following image:

Click to enlarge

CAT is also reinvesting a lot of revenue back into research and development, to ensure it postures the company for future success, ready to weather economic downturns and likewise be positioned to capitalize on market boomsespecially in developing economies of China, India and Brazil. The company supports its products with one of the best after sales support networks in the world, with its logistic requirements driven centrally from its warehouse in Grimbergen, Belgium . Consider these features of its facility there, and its ability to support CAT customers globally:

  • 540 employees and 1.5 million square feet of storage
  • 10,000 emergency orders shipped with an average turn-around-time of 2 hrs 45 minutes
  • 17,000 part numbers shipped daily (600 tons of daily shipping volume)
  • 73 global dealer locations supporting 106 countries

Summary

The company has a proven history of performance over its 85 years history, and on top of delivering consistent performance, it was also listed on the Dow Jones Sustainability Index for the 11th consecutive year . It will continue to perform, and one of the reasons for its success is best summed up as follows by CEO Douglas Oberhelman:

The best quote I heard all year was from one of our very own Caterpillar leaders. During a meeting when we were creating our new strategy, this person said something like, "For years our competitors have been obsessed with Caterpillar. And at the same time Caterpillar has been obsessed with Caterpillar."

CAT is currently trading at $75.08 per share (52 week high $116.55 / 52 week low $72.60). I recommend it as a BUY stock for long position traders or those looking to inject a reliable blue chip dividend paying company into their investment portfolios. Short term positional plays also exist.

Disclosure:

I have no positions in any stocks mentioned, but may initiate a long position in

CAT

over the next 72 hours.