Caterpillar Inc. (CAT), Starbucks Corporation (SBUX): Is China About to Hit the Great Wall?

Despite the decision in late 2012 by the Chinese government to spend over $100 billion in infrastructure projects in the coming years, this plan seems unlikely to start in 2013 according to recent reports. Moreover, if China will pull back from its stimulus package in the near future, companies such as Caterpillar Inc. (NYSE:CAT) are likely to be adversely affected by this impediment. The company’s sales in the Asia/Pacific region tumbled down by 21% in the first quarter of 2013 (year-over-year). Caterpillar Inc. (NYSE:CAT) states the drop in sales was despite the rise in sales in China, which was due to “absence of dealer inventory reductions that occurred in the first quarter of 2012.” This could mean in the coming quarter sales in the Asia/Pacific region and specifically in China will drop. In the meantime, based on the latest monthly dealers report, Caterpillar Inc. (NYSE:CAT)’s machine retail sales dropped in Asia/Pacific by 14% during May 2013.

For Starbucks Corporation (NASDAQ:SBUX), China and Asia Pacific segment accounts for only 6% of the company’s total revenues. In the second quarter of fiscal year 2013, but this segment recorded the highest growth rate in revenues. Moreover, the company’s operating margin is the highest at 32%. In comparison, the profit margin in the Americas segment was only 21.1%. Despite the higher profit margin, Starbucks Corporation (NASDAQ:SBUX)’ profitability in China and Asia Pacific fell in the last quarter. If the competition continues to pick up and China’s growth reaches a halt, the rise in Starbucks Corporation (NASDAQ:SBUX)’ revenues will slow down.

Bottom line

The above mentioned companies aren’t the only U.S companies that operate in China. But these companies have a lot to lose if China’s economic progress continues to slide. Therefore, investors who own these stocks and are persuaded that China’s economy might reach a halt in the near future might consider taking some profits off the table.

The article Is China About to Hit the Great Wall? originally appeared on Fool.com and is written by Lior Cohen.

Lior Cohen has no position in any stocks mentioned. The Motley Fool recommends Starbucks. The Motley Fool owns shares of Starbucks. Lior is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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