Monday's Stock Watch: Caterpillar and Apple

Caterpillar beats expectations, but where are the growth opportunities?

Jan 27, 2014 at 10:15AM

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

Following their worst week since June 2012, U.S. stocks are finding their footing this morning, with the S&P 500 and the narrower Dow Jones Industrial Average (DJINDICES:^DJI) up 0.05% and 0.21%, respectively, at 10:15 a.m. EST. Looking ahead this week, the Federal Reserve's rate-setting committee convenes for its two-day January meeting beginning Tuesday. It is expected to again scale back its monthly bond-buying program, this time from $75 billion to $65 billion. On the earnings front, Dow component and global construction bellwether Caterpillar (NYSE:CAT) reported fourth-quarter results before today's market open, but the most heavily anticipated earnings will come from Apple (NASDAQ:AAPL), which reports after the close.

Caterpillar shareholders have not had much to cheer about for some time, but this morning's fourth-quarter results are adding some pep to their step -- shares are up 5.7% at 10:15 a.m. EST. Amid a slump in global mining activity, no one expected revenue growth per se (Caterpillar hasn't produced year-on-year quarterly revenue growth since the third quarter of 2012), but the construction and mining equipment manufacturer did manage to solidly beat Wall Street's revenue forecast -- $14.4 billion against $13.6 billion. Earnings per share of $1.54 were also well above the $1.28 consensus estimate.

Better yet, Caterpillar's revenue and earnings-per-share guidance for 2014 of $56 billion and $5.85, respectively, are (slightly) above Wall Street estimates. Finally, the company authorized a new $10 billion share repurchase program, as it expects to complete the existing $7.5 billion authorization with $1.7 billion in buybacks in this quarter (having bought back $2 billion worth of stock in 2013).

If the shares are selling at a discount to their intrinsic value, I'm not against a company buying back its own stock, but Caterpillar's situation is representative of a wider predicament for the S&P 500: Companies are goosing earnings per share via share repurchases rather than investing in growth because they don't perceive there is sufficient demand. Indeed, Caterpillar expects capital expenditures for 2014 to be "slightly lower" than the $2.6 billion it spent in 2013, which, in turn, was significantly lower than the $3.4 billion spent for 2012.

Nevertheless, for a stock that has trailed the S&P 500 over the trailing one-, five-, and 10-year periods, today's outperformance must be a welcome sight for investors.

And speaking of growth demand, all eyes will be on Cupertino, Calif., this afternoon, as the world's most valuable company, Apple, reports its fiscal first-quarter results. This is the first full quarter since Apple inked its deal with China Mobile, the world's largest mobile carrier. Analysts and investors will surely be looking to see what sort of boost the agreement has produced for iPhone sales in China.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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