Quick take: CAT
Having gotten out of CAT at 91 - and been wrong, obviously, as it seems to have closed at 105.28 after hours when it released earnings on Friday - I paid careful attention to the quarterly report and supplemental materials they just released.
The whole thing smacks of earnings jiggery-pokery, financial engineering, whatever you want to call it. They moved everything good into Construction and everything bad into Resources so it looks like their two biggest divisions are offsetting each other. Construction looks great, Resources looks terrible. Things are getting built; miners aren't buying. OK, fine. But let's drill down a little bit:
The CEO comes out and says a few things:
* CAT is pretty much a macro play at this point.
* Poor construction outlook in China.
* North American construction is improving. But look a little closer: NA dealers are increasing inventory in anticipation BUT dealer to end-user sales actually anticipated to shrink worldwide? This is followed by a statement about how that won't affect CAT because they sell to dealers.
* They laid off 8% of their workforce. (!) But they haven't taken the full charge yet for doing so. (!)
Right now CAT's own earnings forecast puts their current-year expected P/E at 19.5. In addition, they juiced earnings by repurchasing 2% of shares out in 1Q14; that's highly aggressive. In that context, their "plus or minus 5% around a target of a 5% earnings increase over last year, even though total sales are expected to shrink" isn't very impressive. They'd be contracting without the share repurchase and as I am trying to explain to you, I am not sure they got a very good deal with shares priced the way they are.
I always seem to come back to chickens in this blog, and I think that when I do, I point out that Chinese people love to eat chicken and that BWLD is a good long-term investment. Well, in this case I think the Chinese chicken may come home to roost - and it may do so on the CAT food bowl. Not a buyer at this level.