Is Now the Best Time to Buy Caterpillar Inc. Stock?

What’s hurting Caterpillar?

In one word: Cyclicality

The 4-fold challenge

The mining industry is in the doldrums.

Global construction markets remain weak. Oil prices have tumbled.

The U.S dollar has strengthened considerably.

So what is Caterpillar doing?

In one word: Restructuring

Aggressive cost-cutting

2014 restructuring costs: $441 million. Projected restructuring costs for 2015: $250 million.

Global headcount down 5% over the past year and a half.

The result: Higher EPS on lower revenue

Source: Caterpillar 2014 Year in Review report

Meanwhile, Caterpillar continues to invest in the future…

Focus on innovation

Source: Caterpillar 2014 Year in Review report

…and to use the downturn as an opportunity to buy back shares and boost dividends

Growing shareholder returns

Source: Caterpillar 2014 Year in Review report

So does that make Caterpillar stock a buy today? Not quite.

What the metrics say

Caterpillar stock may appear cheap:

CompanyTrailing

P/EForward

P/EP/BV

Caterpillar 13.2 16.9 2.7

Source: Yahoo! Finance

But a higher forward P/E indicates further potential downside in the stock as business remains challenging.

With prices of key commodities and oil under pressure, Caterpillar may take at least another year to turn around. Meanwhile, you may get the stock at a better price.

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