Recent CAT Buyers Got It Wrong: Fast Pros
With 4th quarter profit soaring more than 60%, should you pile into Caterpillar and other global growth trades? Not so fast.
Considering CAT shares are up more than 20% for just this month, at least some investors like what they see from CAT. But Fast Money traders Steve Cortes and Mike Murphy think recent buyers are misguided.
Largely gains in Caterpillar have been interpreted as a sign the global growth trade remains robust. But Cortes says that may not be the case.
InCaterpillar's earningsreport, released on Thursday, they said some of the buying was generated by customers who had previously put off purchases until they absolutely had to replace their aging equipment.
Cortes also didn’t find all of CATs outlook to be terribly bullish.
The company warned that while Europe's economic crisis probably won't trigger a global recession, economic growth in eurozone counties probably won't improve until the second half of this year.
And outside CAT, Cortes points to the recent S&P gains of only 10 points despite blockbuster Apple earnings and a Fed statement in which the central bank promised to keep rates 'lower for longer.’
If the market was about to embrace risk in a big way, he argues the S&P would be much higher.
Although Cortes concedes the Fed move could trigger a rotation, he expects money to chase yield. “The Fed will force investors into defensive stocks,” he says, “money will go into tobacco and utilities but not global growth names.”
Trader Mike Murphy shares Cortes' bearish outlook on CAT. "I shorted the stock today around $113," he says. "I think the stock is priced to perfection – and my bet is that CAT goes lower from here." (*It's worth noting though he's bearish on CAT, Steve Cortes does not advocate shorting the stock. "It has too much momentum to short," he says.)
Trader Brian Kelly sees the scenario differently. “What the Fed said is that they will do whatever it takes to make asset prices to go higher,” he counters. “More money generates inflation; it makes everything go up.”
Both traders Phil Pearlman and Jon Najarian are outright bullish Caterpillar. “The stronger than expected earnings and positive outlook tell me the global economy is not that bad,” says Pearlman.
In the earnings report, Caterpillar said it expects the global economy to grow about 3.3 percent this year, with the U.S. economy growing by at least 3 percent. In addition, CAT said U.S. construction spending, which has been on the decline since 2004, should finally begin to recover, the company said.
Looking at the numbers a little more closely, Caterpillar reported net income of $1.55 billion, or $2.32 per share, up from $968 million, or $1.47 per share, in the same quarter last year.
Sales and revenue jumped 24 percent to $17.24 billion from $12.81 billion, as sales volumes increased at all three of the company's major businesses. Revenue from Bucyrus International Inc., which the Caterpillar acquired in July, totaled $1.39 billion.
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Trader disclosure: On Jan 25, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Najarian is long AKS; Najarian is long BAC; Najarian is long PNC; Najarian is long WFC; Najarian is long GDX; Najarian is long NFLX; Najarian is long MSFT; Najarian is long IBM
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