Despite Obama pouring mounds of printed money into roads and bridges, I don't like Vulcan Materials (VMC) and I don't like Caterpillar (CAT). There. I've said it. Here's why.
As a neophyte investor, I'm developing my set of criteria for buying stocks. So far it consists of two principles. First, I'm happy to make a mistake and miss out on a stock that goes way up, but I'm not happy to buy a stock that tanks. Second, I only want to invest in a company that I'd have fun managing. Despite the fact that both are scheduled to open much higher today, VMC and CAT fail me on both counts.
VMC makes the raw materials you need to build roads and bridges. They are going to be major beneficiaries of Obama's spending spree. However, VMC has huge debt problems. It's not just the magnitude of the debt, it's the maturation of the stuff. Right now, the thought of rolling over short term debt would terrify me. Every government in the world is sopping up all the investment cash there is and they still have to print money in the basement to cover their irrational, profligate stimulus packages. If you look at VMC's balance sheet, you see they have $31M in cash. They have $2B in short term borrowings. If I was the CEO, I wouldn't sleep at night. Even if you threw in their accounts receivable, which is no guarantee of getting paid these days, you still only pick up another $389M.
Ouch.
CAT is a harder decision for me. I like CAT. I think they're going to do well in the future, I just don't like them now. On other blogs, I've read that commercial construction is falling off a cliff and that Obama's cataract of freshly inked dollar bills isn't going to come close to making up for the drop in commercial construction spending. I haven't looked into that closely, but it makes sense to me, so I'm in no hurry to get into CAT.
Both of these stocks are going to shoot up today, making me look silly. That's OK. I'd rather miss out on a good thing than chase a bad one.
Image used without permission from A-2-Z Trading LLC.
1 comment:
I don't think this was for me; but Cat does look pretty highly leveraged, especially for a tight credit market. They also don't seem to be highly profitable; and I expect they have some of the same labor issues as the big three.
Their sales were not surging over the last three years when times were pretty good; how well will they fair in a down trend? And it won't just be the down trend in the US, but world wide everyone is pulling in their horns. The only thing that looks good is the dividend; and I wouldn't bet against a cut in that given current conditions. Still you never know; you always see those huge yellow beasts wherever you go.
Brian
Post a Comment