In the learning to fish series, we provide investors with suggested guidelines for choosing a potential candidate and one candidate is selected as our play of choice. We provide reasons for this choice and in doing so hope to impart some understanding to those who are new to the field of investing. It is important that readers take the time to read and understand the selection process involved in coming up with these picks. This information can be obtained here "Our suggested guidelines when searching for new investment ideas". These suggestions are not absolute rules. They are just guidelines which can be modified to suit your own investment needs.
Reasons to be bullish on Caterpillar Inc (CAT)
- The merger with Bucyrus will position the new company as the leading global mining equipment manufacturers. Management expects the acquisition to be accretive and contribute over $450 million to its bottom line. This acquisition will help Caterpillar gain a strong foothold in strong mining markets such as China and India. It will also be in a good position to leverage Bucyrus thriving after market parts business while provide supporting services for its own equipment.
- Its backlog has continued to increase, and it now stands at a record level of $30.7 billion, up from 29.8 billion at the end of 2011.
- A strong quarterly revenue growth rate of 23%
- A levered free cash flow of $471 million
- A good quarterly earnings growth rate of 29%
- Percentage held by institutions is 65%
- A five dividend growth rate of almost 6%
- A low payout ratio of 23%
- A great retention ratio of 77%
- A good interest coverage ratio of 8
- A 3-5 year projected EPS growth rate of 23%
- Cash flow per share doubled from $5.94 in 2009 to $11.95 in 2011.
- Annual EPS before NRI increased from $5.37 in 2007 to $7.81 in 2011.
- Year over year projected growth rate of 24.6% and 18.3% in 2012 and 2013 respectively.
- $100K invested for 10 years would have grown to $429K
- A free cash flow yield of 6.29%
Suggested Strategy
There is a decent chance that it could test its lows again. If you are patient, you could put in orders to open up new positions on a test of the 82-84 ranges. Alternatively, you could sell puts in with strikes at 82.50 or 85.00 when it trades in the above ranges. If the stock trades below the strike price, the shares will be assigned to your account. Your final cost will be much lower than buying the stock outright if it trades in the above suggested ranges.
Company: Caterpillar Inc
Basic Key ratios
- Percentage Held by Insiders = 0.59
- Number of Institutional Sellers 12 Weeks = 4
Growth
- Net Income ($mil) 12/2011 = 4928
- Net Income ($mil) 12/2010 = 2700
- Net Income ($mil) 12/2009 = 895
- EBITDA ($mil) 12/2011 = 10474
- EBITDA ($mil) 12/2010 = 7303
- EBITDA ($mil) 12/2009 = 4339
- Cash Flow ($/share) 12/2011 = 11.95
- Cash Flow ($/share) 12/2010 = 7.91
- Cash Flow ($/share) 12/2009 = 5.94
- Sales ($mil) 12/2011 = 60138
- Sales ($mil) 12/2010 = 42588
- Sales ($mil) 12/2009 = 32396
- Annual EPS before NRI 12/2007 = 5.37
- Annual EPS before NRI 12/2008 = 5.66
- Annual EPS before NRI 12/2009 = 2.18
- Annual EPS before NRI 12/2010 = 4.19
- Annual EPS before NRI 12/2011 = 7.81
Dividend history
- Dividend Yield = 2.10
- Dividend Yield 5 Year Average = 2.50
- Dividend 5 year Growth = 5.69
Dividend sustainability
- Payout Ratio = 0.23
- Payout Ratio 5 Year Average = 0.39
Performance
- Next 3-5 Year Estimate EPS Growth rate = 23
- ROE 5 Year Average = 33.87
- Current Ratio = 1.4
- Current Ratio 5 Year Average = 1.34
- Quick Ratio = 0.70
- Cash Ratio = 0.2
- Interest Coverage = 8.25
Interesting companies
For investors looking for other ideas detailed data has been provided on an additional company. Our latest article could also prove to be a source of some new ideas Research In Motion: Significantly Leverage Your Position with no out of pocket expense.
Company: Energy Transfer Partners (ETP)
Basic Key ratios
- Relative Strength 52 weeks = 56
- Cash Flow 5-year Average = 4.97
Growth
- Net Income ($mil) 12/2011 = 669
- Net Income ($mil) 12/2010 = 617
- Net Income ($mil) 12/2009 = 792
- Net Income Reported Quarterly ($mil) = 1115
- EBITDA ($mil) 12/2011 = 1631
- EBITDA ($mil) 12/2010 = 1398
- EBITDA ($mil) 12/2009 = 1520
- Cash Flow ($/share) 12/2011 = 5.67
- Cash Flow ($/share) 12/2010 = 5.34
- Cash Flow ($/share) 12/2009 = 6.32
- Sales ($mil) 12/2011 = 6850
- Sales ($mil) 12/2010 = 5885
- Sales ($mil) 12/2009 = 5417
- Annual EPS before NRI 12/2007 = 3.31
- Annual EPS before NRI 12/2008 = 4.09
- Annual EPS before NRI 12/2009 = 2.51
- Annual EPS before NRI 12/2010 = 1.47
- Annual EPS before NRI 12/2011 = 1.48
Dividend history
- Dividend Yield = 8.3
- Dividend Yield 5 Year Average = 7.9
- Dividend 5 year Growth = 1.5
Dividend sustainability
- Payout Ratio = 3.41
- Payout Ratio 5 Year Average 12/2011 = 1.68
- Change in Payout Ratio = 1.73
Performance
- Next 3-5 Year Estimate EPS Growth rate = 12.05
- 5 Year History EPS Growth = -19.3
- ROE 5 Year Average = 19.14
- Current Ratio 12/2011 = 1.1
- Current Ratio 5 Year Average = 1.15
- Quick Ratio = 0.7
- Interest Coverage Quarterly = 9.33
Conclusion
Long-term investors can use strong pullbacks to open up positions in stocks they would not mind owning for the long haul. A great way to get into a stock at a price of your choosing is to sell puts at strikes you would not mind owning the stock at. Investors willing to take on a bit more risk might find this article to be of interest Alpha Natural Resources 1 Of 3 Candidates Trading Below Book.
Disclaimer
This list of stocks is meant to serve as a starting point. Please do not treat this as a buying list. It is imperative that you do your due diligence and then determine if any of the above plays meet with your risk tolerance levels. The Latin maxim caveat emptor applies-let the buyer beware
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: EPS and Price Vs industry charts obtained from zacks.com. A major portion of the historical data used in this article was obtained from zacks.com. Consensus estimate analysis table sourced from reuters.com. Ycharts data sourced from ycharts.com
