A Sure Bet on Nation Building
11/29/2012 10:45 am EST
Whether it's in the US or halfway around the world in some emerging economy, there's a good chance that if there's building and growth taking place, this company is there observes Mark Skousen of Hedge Fund Trader.
It may take $50 billion to repair the damages in the New York/New Jersey region. One company stands out as a leader in the recovery process and in rebuilding America: Caterpillar (CAT).
Governments, utilities, and private builders all will need Caterpillar's construction equipment. Flood-damaged homes beyond repair must be cleared away, and new foundations must be set to rebuild.
In some areas, washed-out roads and rail tracks will need new beds and need to be re-laid. Earth movers even will be needed for restoration efforts along damaged beaches, harbors, and coastlines.
The market-share leader in heavy industry also will provide the equipment and machinery to rebuild the crumbling infrastructure in the United States. Investing in roads, bridges, ports, railroads, and electric grids will require billions of dollars.
Caterpillar offers quality products, an extensive service network, and unparalleled brand strength to give it solid competitive advantages.
The company’s balance sheet and finances look strong. In the past year, earnings rose 49% to $6.5 billion on revenues of $67 billion. Profit margins are rising to 10%, and return on equity (ROE) is a mouthwatering 40%.
Yet CAT is cheap, selling for less than ten times next year’s earnings. The P/E to growth (PEG) ratio is only 0.69 (anything less than 1 is considered excellent). The stock price is substantially below its high of $115 earlier this year.
Let’s buy Caterpillar at market and set a protective stop of $70 a share. For those willing to take greater risks, consider buying the February $95 calls.