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Recent CAT Buyers Got It Wrong: Fast Pros

Thursday, 26 Jan 2012 | 1:37 PM ET

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.

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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.”

Caterpillar: Best-Performing Blue Chip
Caterpillar rises 3% on blowout Q4 sales and earnings. The Fast Money team breakdown the earnings and share their trades.

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.

Caterpillar Surprises the Street
Caterpillar's stronger-than-expected earnings are pushing shares up more than 3%. Ann Duignan, analyst at JPMorgan, shares highlights from the company's conference call.

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

For Brian Kelly
Shelter Harbor Capital is long GLD
Shelter Harbor Capital is long XLF

For Mike Murphy
Murphy is short CAT
Murphy is long NLY

For Ann Duignan
Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for Caterpillar Inc. within the past 12 months.
Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Caterpillar Inc..
Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investment banking clients: Caterpillar Inc..
Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-investment-banking, securities-related: Caterpillar Inc..
Client/Non-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-securities-related: Caterpillar Inc..
Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation for investment banking Caterpillar Inc..
Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking services in the next three months from Caterpillar Inc.
Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or services other than investment banking from Caterpillar Inc.

For Mark Mahaney
Citigroup Global Markets Inc. or its affiliates beneficially owns 1% or more of any class of common equity securities of Netflix Inc. This position reflects information available as of the prior business day
Analysts' compensation is determined based upon activities and services intended to benefit the investor clients of Citigroup Global Markets Inc. and its affiliates ("the Firm"). Like all Firm employees, analysts receive compensation that is impacted by overall firm profitability which includes investment banking revenues.
The Firm is a market maker in the publicly traded equity securities of Netflix Inc.

For Jens Nordvig
No disclosures

For Nicole Miller Regan
I or a household member have a financial interest in the securities of the following companies: none
I or a household member is an officer, director, or advisory board member of the following companies: none
I have received compensation within the past 12 months from the following companies : none
Piper Jaffray or its affiliates beneficially own 1% or more of any class of common equities of the following companies: none
The following companies have been investment banking clients of Piper Jaffray during the past 12 months: BBRG, CCSC, GMCR
Piper Jaffray expects to have the following companies as investment banking clients within the next three months: none
Other material conflicts of interest for Nicole Miller Regan or Piper Jaffray regarding companies in my universe for which I am aware include:

BBRG, GMCR: underwriting
Piper Jaffray received non-investment banking securities-related compensation from the following companies during the past 12 months: SONC
Piper Jaffray makes a market in the securities of the following companies, and will buy and sell the securities of these companies on a principal basis: BAGL, BBRG, BJRI, CAKE, CCSC, GMCR, PEET, PFCB, PNRA, RRGB, RUTH, SBUX, SONC
Piper Jaffray usually provides bids and offers for the securities of the following companies and will, from time to time, buy and sell the securities of these companies on a principal basis: CMG, DRI, EAT, MCD, MRT





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