Is Jim Chanos Right to Short Caterpillar Inc. (CAT)?

How should Fools proceed?

I thought Caterpillar Chief Executive Officer Doug Oberhelman took an appropriate stance in the wake of the company’s disappointing earnings. I respect corporate leaders who acknowledge mistakes and pledge to work focus more diligently on righting the ship, and that’s exactly what Oberhelman did.

He admitted the company is hurting from the slowdown in global mining activities. At the same time, he noted that as the global population continues to grow, demand for minerals and energy will only grow in tandem.

There’s no escaping the fact that Caterpillar’s quarter was a rough one. That being said, Caterpillar may be cheap enough that the stock looks like a bargain for long-term investors who are willing to wait for the turnaround.

Caterpillar Inc. (NYSE:CAT) management guides investors to expect $6.50 per share in 2013 earnings. At its recent price, shares exchange hands for about 12 times this year’s earnings.

If you believe Caterpillar’s earnings are at or near a bottom, then the current valuation is actually even better than it seems. I’d be inclined to agree with that sentiment. North America is performing very well, China’s rumored slowdown has not yet materialized, and global mining activity should pick up sooner or later.

When you consider the fact that Caterpillar recently upped its dividend by 15%, clearly the company is optimistic about its own future. At a nearly 3% yield, investors are being paid to wait for Caterpillar to turn itself around. All in all, Caterpillar looks like a great buy for investors with a long-term horizon.

The article Is Jim Chanos Right to Short Caterpillar? originally appeared on Fool.com and is written by Robert Ciura.

Robert Ciura has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Robert 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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