Editors Note:

This stock has languished for three weeks waiting for the next tariff shoe to drop. The president released a list of tariffs on another $200 billion in Chinese products and shares only fell $4 and remained above support.


New positions are only added on Wednesday and Saturday except in special circumstances.


CAT - Caterpillar - Company Profile

Caterpillar Inc. manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives for construction, resource, and energy and transportation industries. Its Construction Industries segment offers asphalt pavers, backhoe loaders, compactors, cold planers, compact truck and multi-terrain loaders, forestry excavators, feller bunchers, harvesters, knuckleboom loaders, motorgraders, pipelayers, road reclaimers, site prep tractors, skidders, skid steer loaders, telehandlers, track-type loaders, wheel excavators, and track-type tractors. The company's Resource Industries segment provides electric rope and hydraulic shovels, draglines, track and rotary drills, hard rock vehicles, large track-type vehicles, large mining trucks, longwall miners, large wheel loaders, off-highway trucks, articulated trucks, wheel tractor scrapers, wheel dozers, landfill compactors, soil compactors, machinery components, electronics and control systems, select work tools, and hard rock continuous mining systems. Its Energy & Transportation segment offers reciprocating engine powered generator sets; reciprocating engines; integrated systems used in the electric power generation industry; turbines, centrifugal gas compressors, and related services; integrated systems and solutions for the marine and oil and gas industries; remanufactured reciprocating engines and components; and diesel-electric locomotives and components, and other rail-related products and services. Its All Other operating segments manufactures filters and fluids, undercarriage, tires, rims, ground engaging tools, fluid transfer products, precision seals, and rubber sealing and connecting components; parts distribution; and digital investments services. The company was formerly known as Caterpillar Tractor Co. and changed its name to Caterpillar Inc. in 1986. The company was founded in 1925 and is headquartered in Deerfield, Illinois. Company description from FinViz.com.

Caterpillar was the poster child for blowout earnings and investing their cash in the business. The yellow metal maker reported earnings of $2.82 that rose 120% on a 31% rise in revenue to $12.86 billion and they raised guidance. Analysts were expecting $2.11 and $11.58 billion. Everything was great with the stock spiking 4.5% on the news. Unfortunately, on the conference call the CEO said "operating margins would be lower for the rest of 2018 because of targeted investments to continue expanding their offerings and services, consistent with our strategy for long term growth." I am sure the CEO meant well but his case of foot in mouth disease cost his shareholders $10 billion in lost market cap.

In mid June Caterpillar reported a rise of 24% in global sales for the three month period ended in May. That was slightly less than the 28% rise in the 3-month period ending in April. Latin American sales rose 43%, Asia Pacific 36%, North Americs 20% and EAME rose 16%. Resource industries, energy and mining, saw sales rise 35%, Latin America 124%, EAME 42%, North America 37% but Asia Pacific declined -3% after seven consecutive months of growth.

There is nothing wrong with Caterpillar's fundamentals. They are simply a target for retaliation by China for the tariffs imposed by the president. Over the last three weeks, CAT declined to $134 and held there through multiple bouts of market volatility and the enactment of $34 billion in tariffs last Friday. The news of the $200 billion knocked off $4 but shares failed to return to that $134 level.

I expect them to post good earnings and share should rebound. I am proposing we buy a call and hold it over earnings. The recent support at $134 is our short term safety blanket. The fact shares did not implode today means investors are starting to rethink the tariff issue. The S&P futures are up 8.50 suggesting today's market crash will be erased over the coming days.

Earnings July 30th.

Buy Sept $145 Call, currently $3.35, stop loss $132.85.


No New Bearish Plays