Upbeat Day For Global Markets As Investors Focus On Fundamentals, Positive US Consumer Sentiment Report (CAT)

Friday morning saw US markets continuing their move upward as investors remain hopeful that the long standing European debt issues are at last being addressed, and on a better than anticipated US consumer sentiment report.  The trend continued into mid-day trading as investors return focus to fundamentals, and markets surged higher by over 2% in afternoon trading.

A survey released on Friday showed a spike in consumer sentiment for the first part of November.  The report shows an increase in consumer sentiment from 60.9 for the prior month to 64.2, beating analysts estimates of 61.5 and marking the highest level in five months.  Consumer expectations also climbed from 51.8 to 56.2.

In Italy, the senate approved a new budget law allowing for the formation of a new emergency government in a move that could lay the groundwork for Italian Prime Minister Berlusconi’s resignation.  It is anticipated that Mario Monti will be appointed as Berlusconi’s replacement.

In Greece, Prime Minister Lucas Papademos, will be appointing a new crisis cabinet on Friday in an attempt to enact painful austerity measures and sate the political upheaval that has served to potentially throw Athens into bankruptcy, and drive Greece out of the Euro zone.

Fundamentals Make A Comeback For Investors

As markets continue their rally, the focus has turned back to fundamentals as investors look to companies that are continuing to perform well and may be worth investing in.  One such company is Caterpillar INC (CAT), the Illinois based manufacturer of mining and construction equipment.


Caterpillar growth expectations stem from the company’s positioning in emerging markets, an area of development that is expected to offset decreasing demand from developed countries.  The urbanization occurring in emerging markets translates into increased demand for housing and infrastructure, thereby increasing the demand for Caterpillar’s heavy machinery.

The company is also planning on expanding production levels in approximately eight factories, and Caterpillar has been tapping growth opportunities in China’s massive infrastructure projects and thriving mining industry.  On Friday, Caterpillar announced that its offer to purchase ERA Mining Machinery Ltd, a Chinese maker of mine safety machinery, will assist the company in expanding in the world’s largest coal-producing country as it seeks to modernize its mines.

The planned deal for as much as $886 million would also assist Caterpillar with the expansion of the sales of mining equipment to other countries, with expanding in the mining industry slated to be a top priority for the industry giant.  China currently consumes approximately 40% of the world’s coal, and accounts for 70% of underground coal mining.

The company also has plans for additional investments in Russia, producing off-highway trucks catering to the mining and regional quarry customers.

Caterpillar To Maintain Focus On Growth, Emerging Markets

Caterpillar does face rising competition in these markets, however, with market share falling to 7% in China, down from 10%.  The acquisition of MWM Holdings, a global supplier of sustainable, natural gas and alternative-fuel engines, will assist Caterpillar in gaining market share in their engine division by offering additional options for customers for sustainable power generation.

Caterpillar also announced the execution of an agreement with Vestas Wind Systems, whereby the company will re-manufacture minor components, recondition turbine parts and perform sub-component repairs in order to raise Vestas Wind Systems’ servicing capabilities and support long-term revenue growth for Caterpillar’s engine division.

The continued focus on growth and expansion, combined with strong company fundamentals could mean Caterpillar has more room to run in the coming months.  Although shares of Caterpillar are trading at the high end of the P/E ratios for the sector, there is the expectation of paying more for a 15.4% appreciation in share price over the past twelve months and a 36.2% return on equity.

Watch for opportunities to enter into long positions and enjoy the company’s dividend payment – currently 1.92% – while you wait.