Please ensure Javascript is enabled for purposes of website accessibility

Caterpillar Inc. Trades Lower After China Data, and Boeing's Tanker Project Hits Turbulence

By Daniel Miller – Mar 24, 2014 at 3:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Here are two industrial giants making headlines today.

The Dow Jones Industrial Average (^DJI 0.25%) was trading 20 points lower, or 0.13%, by midafternoon after investors digested new manufacturing data. Markit's initial Manufacturing Purchasing Managers' Index reading for March was 55.5, down from 57.1 in February. The cool-off was expected, and the average for the first quarter was higher than last year's fourth quarter. Meanwhile, a weaker than anticipated reading from China raised expectations of additional stimulus from the government in Beijing.

"It tells you something about the extent to which market concerns about a slowdown in China are justified," Commerzbank strategist Peter Dixon said in a Reuters report. "In the eurozone, the economy is bowling along at a reasonable pace." With those global trends in mind, here are some companies making headlines today.

Caterpillar product floor. Source: Caterpillar.

Inside the Dow, Caterpillar (CAT 0.73%) was trading 0.51% lower on the manufacturing data from China. Caterpillar is the world's largest manufacturer of construction and mining equipment and, as such, is often viewed as a barometer of global economic activity. Caterpillar has taken a hit as China's economic growth has slowed from double-digits a few years ago to roughly 7%-8% annually. As China's activity slowed its mining market, which Caterpillar is substantially exposed to, dried up quickly. That said, Caterpillar CEO Douglas Oberhelman sees a silver lining in a stable customer base.

"Our customer base in China is fairly solid -- we haven't seen the number of defaults, past-dues, repossessions we had seen in the past. I'm not so worried about that," Oberhelman told CNBC Asia's Squawk Box on Monday. 

Investors would be wise to keep tabs on the Chinese government's stimulus policy which could inject capital into the market in an attempt to propel the economy forward -- something that would help Caterpillar's customers. While Caterpillar offers investors a potential turnaround story, I haven't seen enough to convince me that 2014 will be any better than 2013, and I'll remain on the sidelines for now.

Also inside the Dow, aviation giant Boeing (BA 2.64%) is making headlines for something investors won't appreciate, again. According to Reuters, the U.S. Air Force estimated that Boeing's development of the KC-46A aerial tanker program will cost almost $1.1 billion more than originally planned. Furthermore, the terms of the government contract state that Boeing must cover the additional cost, making this budget more of a headache. In an effort to lessen the sting of this report, Boeing announced it still plans on making a profit on the tanker.

"We expect to make money on the KC-46 tanker program," Reuters quoted spokesman Jerry Drelling as saying, "including potential U.S. and international tanker sales and related services for decades to come."

The first 18 aircraft produced in the KC-46A project were initially said to be worth $3.5 billion, and they are still on schedule to be delivered by 2017. However, that makes it clear how easily rising costs could eat into the value of the initial deliveries. As Drelling noted, this could lead to further orders. Boeing was awarded the first part of a much larger contract that could be worth more than $75 billion. If Boeing can trim its costs, prevent further budget overruns, and deliver the tankers on time, it could firmly place its foot in the door for the remainder of the contract. 

Daniel Miller has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.