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Friday, November 1, 2013

After Caterpillar's Disappointing Earnings, Time to Buy the Dip?

Caterpillar stock fell over 6% last week after the company posted very disappointing earnings and guidance. Caterpillar missed analyst expectations on both the top and bottom lines, with most of that being due to weak mining equipment orders.

The continued slowdown in mining equipment demand hurts Caterpillar significantly because it has historically been the area of highest margin sales for Cat, and the company is not far removed from its largest acquisition ever, mining equipment maker Bucyrus. Buying Bucyrus at the height of the mining cycle has many now believing that Caterpillar overpaid.

Looking forward, Caterpillar shared for the first time its 2014 guidance, projecting flat 2014 revenue from this year. The company expects to see continued strong mining production around the world going into 2014, but that hasn't been translating into orders lately. Investors must keep an eye on mining equipment demand, as well as the company's two other segments which Caterpillar hopes will pick up the slack.

Overall, there's not a ton to be optimistic about in the short term for Caterpillar. One of the big problems with Caterpillar remains that that much of what determines the company's successes or failures are out of Caterpillar's hands. The global economy, commodity cycles, and mining equipment demand are just a few macro trends that have a profound impact on Caterpillar.

For investors, don't expect much out of this stock over the short term. But keep an eye on this over the next few quarters, this could wind up being an attractive entry point for long-term investors. Brendan shares his complete thoughts in the video below.

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