Caterpillar Inc. (CAT): Buy or Avoid?

Peer Comparison

Caterpillar shares its market space with CNH Global, JOY Global, and Deere & Co.

Although Caterpillar has high debt/equity levels, it was primarily due to the acquisitions it carried out over the last 2 years. Deere & Co. has even worse debt/equity levels, but it is one of the prime beneficiaries from the rising demand of agriculture machinery. Although JOY Global has the best mix of fundamentals, I think Caterpillar should not be ruled out just on the basis of the above table. I believe Caterpillar has not yet realized the financial benefits of its acquisitions (as a whole), and its sliding shares present a buying opportunity.

Wrap Up

Its inventory/sales declined from 27% to 25% this quarter, and management expects to further reduce its inventory in Q1. Moreover, dealers added around $1 billion inventory in FY12, and the company expects them to reduce more than $1 billion worth of inventory in FY13. This suggests that its profitability will remain under pressure, and its share price could continue to slide at least for the first quarter. I think long term investors should buy Caterpillar on dips.

The article Caterpillar: Buy or Avoid? originally appeared on Fool.com and is written by Piyush Arora.

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