Tulsa World: Watch the big boys

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Watch the big boys
Industrial stocks such as Caterpillar can give investors a pulse on today's global economy.

Workers use Caterpillar equipment as they work on a parking lot in Buckhead, Ga. The Motley Fool says keeping an eye on industrial stocks is a good way to measure the health of the global economy. Chris Rank / Bloomberg

By MOTLEY FOOL
Published: 11/9/2009 2:21 AM
Last Modified: 11/9/2009 10:34 AM

Global giants such as heavy equipment maker Caterpillar (NYSE: CAT) can offer clues about the health — or lack thereof — of the U.S. and global economies.

Caterpillar recently reported some bad and not-so-bad quarterly results. It earned $404 million in its third quarter, down 53 percent from last year's levels. As you'd expect, the decline was due primarily to a reduction in volume. On the flip side, however, Caterpillar benefited from cost reductions, a smaller employee base (17,000 fewer workers than last year), and a lower effective tax rate, among other things.

During the company's conference call, management noted that "Over the past year, we have seen an extraordinarily steep drop in demand in the industries we serve." Yes, that does sound ominous. But looking ahead, CEO Jim Owens observed, "We are seeing encouraging signs that indicate a recovery may be under way." For 2009, management is now forecasting higher profits, and for 2010, it anticipates sales and revenues improving by 10 percent to 25 percent from the midpoint of 2009 expectations.

To keep your finger on the pulse of the global economy, watch Caterpillar and other industrial bellwethers, such as Dow Chemical and Ingersoll-Rand, closely. And if you'd like to profit from our eventual economic recovery, consider adding Caterpillar to your watch list. By MOTLEY FOOL

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livinintheburbs, (11/9/2009 8:01:30 PM)

Cat is up because the stimulus is building infrastructure...Jeesh another Fool telling me what to buy...No thanks

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