‘The Market Is Stupid’

Cramer says Caterpillar is probably the single best stock you could own for the rest of the quarter, but it’s still down about 14% year-over-year. How the same geniuses that have this stock down could have Terex, Cummins and Paccar up – and up big – is beyond reasoning. To put it bluntly, Cramer says, “The market’s stupid.” Hey, that’s fine. This just means you have a chance to own a best-of-breed stock at a discount – and ride it to its rightful place at the top of the heap.

Caterpillar shouldn’t be trading like its pinned under housing like that witch from the Wizard of Oz. You need to think of CAT as a stock that’s tied to natural resources and not as a company trapped under the miniscule portion of its business that is new-home sales. Copper and nickel prices have been shooting up again thanks to the Chinese, who’ve finally started to buy commodities again. Oil’s staying high, so the heavy trucks that CAT makes for tar sands are still in business.

There was also talk that new truck engines, a big part of CAT’s business, would be down this year. But if Cummins and Paccar are close to their highs – and these are the biggest companies in the truck game – and they’re saying strong sales should continue through 2007, Cramer says there’s nothing to fear. CAT’s engines are still in bull mode.

The two biggest things happening in the market right now, according to Cramer, are the reversal of commodity prices and the unwinding of the yen carry trade, which is a fancy way of saying that the dollar is plummeting against the yen. This is great for CAT. Komatsu, CAT’s Japanese counterpart, says it wants to take share from CAT in Asia, but at this point the exchange rates make Komatsu uncompetitive. And even if they were, it’s not like this is Toyota versus GM or Ford, where consumers will pay up for a Japanese Lexus anyway. In this situation, CAT is Lexus. It’s the Toyota, and Komatsu’s more like GM. And yet, because of the strong yen, Komatsu’s stuff is now more expensive than CAT’s. Right now CAT only gets 12% of its business from Asia, but, with the weak dollar, Cramer is betting they take that continent by storm.

Even if you buy this stock and it doesn’t run, you can always count on the company’s stock buyback. You’ve got a $7.5 billion share-repurchasing plan to support you. The bottom line here: Either the market takes CAT up, or CAT pulls itself up by its own buyback. Both cases make this company a buy.

Jim's charitable trust owns Caterpillar.

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