A Golden Opportunity With a Silver Lining
The world's largest maker of construction equipment is, according to Reuters, doing something even more lucrative. It has begun exporting Chinese-made machinery to the Middle East and Africa, part of a plan to offset a dip in China's economic growth.
That may be more like striking gold for Caterpillar than using gold to make its construction equipment look shinier. Caterpillar looks shiny enough with its 67% (year-over-year) second-quarter earnings growth and its stock selling at only eight times forward earnings.
To add a silver lining, Caterpillar's five-year expected PEG ratio is an unbelievably cheap 0.52. The Price-to-Sales ratio is also below 1 (0.86). Price-to-sales is derived by dividing a stock's current price by its revenue per share for the trailing 12 months.
CAT shares are selling for less than its revenue per share, yet its quarterly revenue growth as of the end of June was up a pleasant 22% and its Return on Equity (trailing 12 months) is a plus 40%. If that's not enough, it pays a $2.08-per-share annual dividend.
If we were so fortunate to catch one more down day like last Thursday and buy CAT shares at $82.10, that would bring the yield to 2.53%. There's still a good amount of fear and uncertainty looming, so we may experience a market downdraft before the "all's clear" signal is sounded.
As the chart below tells us, Caterpillar's share price follows earnings and revenue growth.
Equipment companies like Caterpillar are well off their highs because the perception persists there's a worldwide economic slowdown and that the mining sector, which includes precious metals, is dead in the water.