Caterpillar Pulls Down the Dow For the Wrong Reason

Dow component Caterpillar suffered an executive departure Friday, pulling the whole average down. But the bigger problem for Caterpillar is more fundamental.

May 30, 2014 at 11:30AM

The Dow Jones Industrials (DJINDICES:^DJI) weren't able to press into record territory on Friday morning, falling 30 points into the red as of 11:30 a.m. EDT after getting to within about 20 points of a new all-time closing high yesterday. Economic data pointed to sluggish consumer spending, but the biggest decliner in the Dow was Caterpillar (NYSE:CAT). Nevertheless, even though Caterpillar's big news today involved the departure of a key executive, smart investors need to look beyond those headlines to see the real reason why shareholders aren't entirely comfortable with the heavy-equipment manufacturing business right now, especially in light of trends at peers Joy Global (NYSE:JOY) and Deere (NYSE:DE).

Source: Caterpillar.

Most commentators blamed Caterpillar's 1.7% drop this morning on the departure of Chief Information Officer Randy Krotowski, who announced his resignation effective Sunday to pursue unspecified further endeavors. Krotowski had only been at the company since early 2012, but his three decades of experience at one of the energy giants in the Dow Jones Industrials gave him the knowledge to pursue closer relationships with Caterpillar's dealers and customers and put in motion a long-term strategic plan to get information technology solutions to help customers use equipment better and for dealers to manage their businesses more effectively.

Yet Caterpillar also faces ongoing challenges in the broader fundamentals of its business. Last week, the Dow component reported overall machine sales fell 13% in the three-month period ending in April. Most of that weakness came from its mining-equipment segment, which is suffering from big declines in commodity prices that have forced mining-company customers to cut back on capital expenditures for equipment. Joy Global is even more exposed to those factors due to its greater focus on the mining industry. Caterpillar does have pockets of strength, as its construction segment has seen sales finally start to rebound as the strong North American market finally asserts its importance in the company's overall operations.


Source: Deere.

Meanwhile, some argue that Caterpillar isn't as strong a company as Deere, which has focused on the agricultural segment and has enjoyed great success in serving that booming industry. Yet both companies face the cyclical nature of their respective businesses, and it's inevitable that Caterpillar, Deere, and Joy Global will all have to endure down periods. What's unclear is how long sluggish periods will last, and globally, Caterpillar has to deal with different economic conditions that have a big impact on its overall business.

Executive departures are never good news for a company. But the big question for Caterpillar and for the Dow Jones Industrials more broadly is whether a long-awaited upturn in the usual cyclical businesses in the U.S. economy will finally appear and spread worldwide. Until that happens, Caterpillar's prospects will remain in question.

You can't afford to miss this
"Made in China" -- an all too familiar phrase. But not for much longer: There's a radical new technology out there, one that's already being employed by the U.S. Air Force, BMW and others. Respected publications like The Economist have compared this disruptive invention to the steam engine and the printing press; Business Insider calls it "the next trillion dollar industry." Watch The Motley Fool's shocking video presentation to learn about the next great wave of technological innovation, one that will bring an end to "Made In China" for good. Click here!

Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

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.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information