Idea Alert: The Bear Thesis On Cat

Takeaway: Multi-decade highs in mining/resources investment leave CAT vulnerable to a slowdown in its most profitable division.


CAT’s TAIL remains broken = 94.27

No TRADE support to 88.04



The Resources Cycle May Be Turning Against CAT

  • Recent Results Signal Weakness: CAT’s 2Q earnings report showed that implied orders had declined year-over-year as backlogs were drained.  The company “beat” in the quarter, but only by recognizing revenue on previously accumulated orders.
  • Resources Equipment Important: Resources investment may be set to weaken, given what appears to be slowing developing market growth.  Should that occur, CAT’s most profitable could see meaningful declines.
  • Industry Structure:  While CAT is a strong competitor in an industry with a healthy structure, recent competitive entry by emerging market rivals like SANY and Zoomlion is not positive.  Should demand slowdown in key Asian markets, the additional competition would not be helpful.  Typically, we look for weaker industry structures on the short side.
  • Valuation:  If the resources investment cycle does turn against CAT, the cyclically-adjusted valuation would be shown to be meaningfully lower than current levels.  CAT does not appear to offer a wide enough discount at current levels to provide compensation for this risk, in our view. 
  • Risky US Construction Exposure: CAT is frequently owned for exposure to a rebound in developed market construction.  While CAT would benefit from higher construction equipment sales, the risks on the resources investment front far exceed the benefits of a cyclical rebound in developed market construction activity.


If History Rhymes, CAT Could Decline Significantly If Resources Investment Stalls

Idea Alert:  The Bear Thesis On Cat - 1



Second Quarter Results Showed Implied Order Declines

Idea Alert:  The Bear Thesis On Cat - 2



CAT’s Stock Tends To Follow The Backlog

Idea Alert:  The Bear Thesis On Cat - 3


Neurofinance: The Psychology Behind When To Sell A Bull Market

"Most momentum investors stay invested too long, under-reacting and holding tight after truly bad news finally arrives to break the trend," writes MarketPsych's Richard Peterson.

read more

Energy Stocks: Time to Buy the Dip? | $XLE

What the heck is happening in the Energy sector (XLE)? Energy stocks have trailed the S&P 500 by a whopping 15% in 2017. Before you buy the dip, here's what you need to know.

read more

Cartoon of the Day: Hard-Headed Bears

How's this for "hard data"? So far, 107 of 497 S&P 500 companies have reported aggregate sales and earnings growth of 4.4% and 13.2% respectively.

read more

Premium insight

McCullough [Uncensored]: When People Say ‘Everyone is Bullish, That’s Bulls@#t’

“You wonder why the performance of the hedge fund indices is so horrendous,” says Hedgeye CEO Keith McCullough, “they’re all doing the same thing, after the market moves. You shouldn’t be paid for that.”

read more

SECTOR SPOTLIGHT Replay | Healthcare Analyst Tom Tobin Today at 2:30PM ET

Tune in to this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more