Gathering New Information about Stocks, Health, and Sports

          With the primary purpose of selling products dedicated to mining or digging, Caterpillar (CAT) might not be too favorable to investors with the decrease in price of commodities. However, such a situation may not be that unfavorable to this company.
         With a recession looming illustrated by corporations stopping some of their production to accommodate the eventual decreasing demand as represented by the waning job offerings, commodity prices will reflect such a change by having significant decreases in terms of price. When prices of commodities such as zinc, copper, nickel, or aluminum go down, there becomes a serious issue of the simple theory of supply and demand. The reason for this drop should be attributed to the availability of products remaining in the market centered on that commodity. When you are given times when unemployment seems to have reached its lowest point and layoffs are inevitable coupled with the fact that demand side inflation has pressured prices to extreme levels resulting in unfavorable desires to purchase such products, trouble seems to bloom. It’s true that decreases in the price of oil may negate some of this negative consumerism, but once oil prices are restored back to its original prices due to inventory cuts or a cold winter season, there should be a tremendous effect upon production, prices, and eventually earning reports for commodity based companies.
         How does such a theory relate to Caterpillar? Simply put, corporations like Caterpillar, since their nature is cyclical, and inventory restrictions may deprive them of future sales, should have shares fall during times of recession or when commodity prices decrease. However, when analyzing this company relative to technical factors, during recent recession points, Caterpillar has not faired that terribly. Since the early 1990s, shares of Caterpillar have steady increased about 700%. During times of strong economic growth and prosperity, Caterpillar shares tend to skyrocket with accommodating high commodity prices. However, during times of recession, shares tend not to fall too dramatically but move in a sideways pattern which represents the resiliency of such a strong Dow component. Such assurance should be expected for a corporation notable for posting excellent fundamentals. Revenue has been growing each year creating wonderful margins. Profit along with assets compared to liabilities have also been a positive for this company which again reiterates the tenacious ability for shareholders to rest assured without worrying about garnering capital losses.
         Thus, while the economic situation may look unfavorable in relation to the purchase of Caterpillar shares, with a strong technical background, and excellent fundamentals, Caterpillar may not be a strong buy for short term speculators but is absolutely a strong long term buy for more patient investors. The one thing I would recommend however is to purchase shares if possible below 70 points to achieve the most of your capital gains when this stock reaches a new high in three to four years.

-Dennis Biray
October 8th, 2006