Sell Block: Does Infrastructure Still Work?
President Barack Obama’s stimulus plan isn’t boosting infrastructure stocks the way Wall Street expected. In fact, the very names that should have benefited the most were down Thursday. Terex lost 15%, Jacobs Engineering 7%, and Caterpillar 3.5%. It was like the market was laughing, Cramer said, at the new president’s bill.
The technical analysts seem to agree with the overall market. The charts for all three companies scream sell, sell, sell. (Watch the video for an in-depth explanation of those charts.) But Cramer wanted to double-check the fundamentals before he joined the bandwagon. Were there other reasons beyond Obama’s stimulus and a technician’s blessing to own the stocks?
Not for Terex. Cramer called TEX a worst-of-breed version of Caterpillar, saying the company is exposed to the weakest areas of equipment spending. Even if the bill that the House passed Wednesday evening was much more infrastructure-friendly, it wouldn’t be enough to help Terex.
The answer’s the same for Jacobs Engineering JEC, too. JEC has too much exposure to oil and gas projects, and those companies are cutting spending right now. Plus, JEC doesn’t operate in the few areas of infrastructure that actually made it into Obama’s bill. The company pays no dividend. And with the stock up 55% from its $26 52-week low, which it reached in November, Cramer said there’s no reason right now to own JEC.
Caterpillar, though, is another story. Cramer knows that Obama’s stimulus package won’t help CAT. But the dividend yield – 5.3% – is just too attractive for him to walk away from. Even after the company’s big earnings miss on Tuesday, the announced 20,000 layoffs and the reduced guidance for 2009, that dividend is still safe. The payout’s $1.72 a share, and CAT expects to earn $2.50 for the year. And management said it would most likely generate $4 billion in operating cash flow. So investors can expect their checks per usual.
The chartists may be right about Terex and Jacobs Engineering, but Cramer isn’t willing to let go of Caterpillar just yet. That stock, he said, is a buy.
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