Whenever economic conditions appear to be weakening analysts tell us to invest in yellow metal. Sometimes you need to do that investing when economics are improving. You are probably thinking I am talking about buying gold. However, I have a different form of yellow metal that could be just the right time to buy.

CAT - Caterpillar Inc Company Profile

Caterpillar manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives worldwide. All of their equipment is painted a distinctive yellow and is known the world over.

CAT reported earnings last week of 67 cents and missed estimates by a penny. Earnings fell -68% and revenue fell -25.5% to $9.46 billion. They guided for full year for $3.70 per share, down from $4.00 in prior guidance.

The key point to the earnings report was the guidance. The CEO said for the first time in years they are seeing an increase in demand from China. He said we do not expect a "hockey stick" rebound but the bottom is either in or currently being formed.

Caterpillar is seen as the canary in the coal mine for the global economy. I guess that is appropriate since all their equipment is yellow. Any material development in the construction or mining industries requires Caterpillar equipment. If China is starting a bunch of additional infrastructure projects, Caterpillar will supply the equipment. For CAT to say demand is rising in China suggests the stimulus is working and the long decline in the Chinese economy may be over. Commodity prices are rising and that means an eventual rebound in mining.

Cat shares had already risen 28% in Q1 and was the best performer in the Dow. They pay a 77 cent per quarter dividend, which equates to a yield of 3.83%.

Shares hit a high of $116 in 2011 and 2012 before slumping with the global economy. I believe investors will continue to buy CAT if there is any glimmer of an economic rebound. However, I do not want to blindly buy the Friday dip. We have plenty of time and a market that could be near is highs.

I am recommending we buy a January call with a CAT trade at $80.75, over Wednesday's close at $80.40, and under initial resistance at $90. The 2014 high was $106. With CAT's nearly 4% dividend and guidance that China is improving, I think any post earnings depression could be limited. If it is not then we will look at a better entry point as the stock declines.

With a CAT trade at $80.75

Buy Jan $85 call, currently $3.30, no initial stop loss until we see what happens this week.

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