If you absolutely must own this stock and plan to hold it for years, go ahead and buy it now. Selling at $67, shares are fairly priced, but not priced great. Cat at this level is not a value. At $58 it was, but that was before the buyback was announced (causing the run). If my middle of the road estimate is too high, then shares fall from here; if it is low they go up. The risk / reward is evenly balanced. To minimize this risk, and tilt the balance in my favor I will wait for a great price, one that prices in the potential for an earnings miss. "What price is that," you ask?
Cat is currently another high fastball. Shares are priced fairly for 2007's growth after the recent run. I need to have shares at about $62 (7% lower) before I pull the trigger. I will add it to the watch list and we will see what happens. Let's let this fastball come down in the strike zone before we swing...
Cat came close to $62 ($63 and change), but never hit it. I think I may have placed too much emphasis on the US market and set the buy point too low. Management then came out a reiterated their earnings view and the stock has run with the market recently to $78. Today they again reiterated: "Inside the U.S., business is a little weaker than we thought and it looks like outside the U.S. is a little stronger than we thought," said Mike Dewalt, director of investor relations, at JPMorgan's Basics and Industrials conference.
Management said it expects 2007 earnings per share of $5.30 to $5.80 on revenue of $42 billion to $44 billion. Looking forward to 2010, earnings are expected to reach roughly $8 to $10 a share on revenue of $45 billion to $60 billion.
Oh well, did not make any money, did not lose any. The good news is the methodology for picking winners is working. I guess in this scenario, I would rather have picked a company and not bought only to watch the stock rise than to pick it and watch it drop like a stone. That would mean there was a problem with the evaluation of the business. Here I was just too picky on price. I can live with that.
CAT 1-yr chart: