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September 6, 2006 From a purely momentum/technical perspective, Caterpillar could certainly attract investor attention in the coming sessions. However, this doesn’t necessarily mean that CAT is a safe investment. The likelihood of a sustainable rally in CAT runs contrary to the developing slow down in the global economy. Quite frankly, there is going to come a day – probably within the next 6-12 months – when CAT is no longer adding a billion to its bottom line every year. Yes CAT’s rear view mirror is as alluring as ever and another dividend hike could, potentially, help build a temporary floor in the company’s stock price. But a couple of worrisome thoughts are difficult to ignore: paying 7.3 times tangible book for any company that has a dividend yield 1.7% and a PEG ratio above 1 is dangerous. CAT isn’t just any company you say? That’s right - it is, historically, a cyclical company. Those that think we are in the late stages of a business cycle raise your hand. If you are clicking buy on CAT and your hand is up in the air, you just bought into the soft landing and 9-lives fables… |
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