Cramer's Case for CAT

The debate over how Caterpillar will fare as we head into 2009 and a coming recession is split, not surprisingly, between a confident management and hypernegative analysts. To come to his own conclusion, Cramer ignored them both.

Wall Street is expecting CAT’s earnings to be cut in half as ISM numbers are getting worse, the dollar’s getting stronger, energy looks bad and housing is still in trouble. Management, however, expects revenues to be flat year-over-year, end markets to remain strong and 2009 to be a good year overall. But Cramer is concerned only with the dividend, which is worth $1.72 a year, or 4.1%. Because no matter who’s right in this debate, investors will be paid to wait.

If forced to choose sides, though, Cramer would say the analysts are behind the curve here. The expected worse for CAT is already priced into the stock. The share price recently has dropped as low as $33, a price that reflects depressionary levels, not the recession-like dip we’re expected to see. If CAT ever dropped that low again, the dividend yield would jump to 5.2%, making it an attractive buy, Cramer said.

Cramer’s also expecting an infrastructure boom under a president Obama, who the polls have said should win Tuesday night, so CAT would benefit there as well.

As long as this stock’s yielding 4%, Cramer said it’s a buy. Worst-case scenario, CAT goes lower and you get to buy more for its higher yield at a cheaper price. If CAT goes up, Cramer thinks it could trade as high as $60.48 (it’s at $42.25 now), for a nice 43% gain.

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