In a nutshell, 2015 is going to be a tough year for Caterpillar. However, this is already factored in the companys stock price, and the big question now is whether the companys 2015 guidance marks the bottom for the company. I believe the worst is already factored in the companys updated guidance. Oil prices seem to be bottoming while the dollar is also stabilizing. Sell side analysts are expecting the companys top line to remain flattish and its EPS to increase in FY2016.
Analysts at Baird recently upgraded the stock to outperform citing cyclical bottom in commodities markets. According to Baird analyst Mig Dobre, the decline in commodity prices over the last several years is similar to the 1980s bust, and anything worse is unlikely, given the significant stimulus from central banks around the world. He also said that Caterpillars stock typically bottoms before the actual bottom in the mining business and "waiting for confirmation from improvement in bookings could mean being late to the party."
Caterpillar is trading at a forward PE of 16.14 and has a forward annual dividend yield of 3.40%. I expect the company to be more aggressive in terms of buybacks and restructuring going forward. The companys medium to long term prospects looks good. Long-term investors should look to buy this quality large cap stock cheap at current levels.
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