Watching Caterpillar, Inc.

Posted on January 27, 2006 , filed under Stocks | Print This Post

I am currently watching CAT, Caterpillar, Inc., as an alternative investment to gold mining companies. With gold’s recent rise I am looking at ways to invest in the gold rush without having direct exposure to the metal. Caterpillar, Inc. manufactures construction and mining equipment; diesel and natural gas engines; and industrial gas turbines. It operates its business in Machinery, Engines, and Financial Products lines. As mining companies rush to expand operations they turn to companies like Caterpillar to purchase their equipment. I believe 2006 will be a great year for CAT, if gold mining companies continue to expand and a gold rally persists through the remainder of the year.

CAT reminds me of companies like CSCO, Cisco Systems, Inc. or NT, Nortel Networks Corporation that were the providers of infrastructure products during the .com bull run. Undoubtedly, if analysts speculate about the gold rush continuing, CAT valuations will also jump up with the expectation that companies will never end their increased spending on mining equipment. CAT is currently trading above $66, I see CAT potentially passing $90. I would consider investing in CAT at under $50. The last time CAT traded at under $50 was in late October, 2005. The risk for CAT comes from a steady drop in gold, energy or property prices, a drop in any of them would negatively impact sales for CAT.

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