Caterpillar’s earnings surprise is good news for all mining equipment shares
This morning, October 24, before the New York market opened Caterpillar (CAT) announced third quarter earnings of $1.71 a share, a positive earnings surprise of 7 cents a share.
Today, as you’d expect Caterpillar shares are up big—5.08% as of 2:20 p.m. New York time—and as you’d expect Caterpillar’s positive surprise has sent shares of other companies in the construction and mining equipment sector soaring.
And the more exposure a company has to mining—the strongest part of Caterpillar’s business this quarter—the bigger the gain. So Deere (DE), which has more exposure to farm than to construction equipment, is up 3.26%. Joy Global (JOYG), which is more of a pure play on mining than Caterpillar, is up 5.68%. And Titan International, which has big exposure to mining and has been beaten down more than either Caterpillar or Joy Global, is up 11.64%. (Deere and Joy Global are both members of my Jubak Picks 50 long-term portfolio http://jubakpicks.com/jubak-picks-50/ . Titan International is a member of my 12-18 month Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ )
It also probably hasn’t hurt Titan International that the company reports earnings on October 26, after the New York market closes, and that’s close enough to Caterpillar’s report date to make the momentum players jump on board in search of another earnings surprise. (Joy Global, by contrast, doesn’t report earnings again until December 14.)
Let’s not move on too quickly from Caterpillar’s earnings, though. Read more
Update Deere (DE)
The challenge for Deere (DE) isn’t revenue growth. Revenue grew by 24% in the fiscal third quarter, the company announced on August 17.
Controlling costs is the issue. Operating income in the quarter rose by just 12.5%. Raw materials costs, the company said, will be $700 million higher in 2011 than in 2010. That’s a $100 million increase from the company’s forecast last quarter.
That didn’t stop Deere from raising its forecast for net income for the full fiscal year to $2.7 billion from the prior forecast of $2.65 billion. But that 1.9% increase in projected net income lagged the 2-percentage point to 4-percentage point increase in the company’s revenue targets for all of fiscal 2011. (Deere’s fiscal year ends on October 31.)
If Deere is a core position in your long-term portfolio I don’t think you need to sell—the long-term trends toward higher global incomes and greater consumption of grains and grain-fed meat remain intact and Deere is a major beneficiary of those trends. (Deere is a member of my long-term Jubak Picks 50 portfolio http://jubakpicks.com/jubak-picks-50/ )
But I wouldn’t make adding to positions here my No. 1 portfolio priority either. Read more
Update Deere (DE)
The market apparently decided to be disappointed with Deere’s (DE) quarterly financial report issued before the open yesterday, May 18. The stock was down 1.5% as of noon New York time yesterday. And while it’s in the green today, it’s not in the green by much.
I think I understand why (and I care because Deere is a member of my long-term Jubak Picks 50 portfolio http://jubakpicks.com/jubak-picks-50/ ), but you sure have to dig below a lot of good news to find anything to be negative about.
But let’s get the shovels ready, shall we, and see if we can uncover the grounds for disappointment. Read more
Farm stocks drop on what is, in my opinion, an overly optimistic forecast from the USDA–buying opportunity ahead
The May 11 crop forecast from the U.S. Department of Agriculture knocked the chaff out of the grain market. Corn fell in price by the most allowed on the Chicago Board of Trade and wheat and soybean prices followed downward.
The cause of the plunge? The USDA said that grain inventories at the end of the harvest year will be larger than expected. Corn stockpiles will climb to 900 million bushels, for example. That’s a significant 23% higher than the 730 million bushels this year. Of course, this year’s 730 million bushels is the lowest stockpile in 15 years.
You can understand why that kind of switch would have sent some commodities traders scurrying to take profits. The price of corn has doubled in the last year as traders bet that the slim margin of error represented by that 15-year low in stockpiles would generate enough fear of shortages to keep prices rising.
What’s less easy to understand is how the USDA got to its new projections. I think they include some wildly optimistic assumptions. And if I’m right, the current sell off in farm-related stocks such as Deere (DE), down 4.4% from the May 10 close to the close on May 12 (that’s two days in case you’re counting), and Potash of Saskatchewan (POT), down 5.7% in those two days, could turn what was already a pretty good buying opportunity into a great buying opportunity in the sector.
Here’s what the USDA said that leaves me scratching my head. Read more
Pork prices threaten higher inflation in China and promise higher farm profits in South America
This little piggy went to market. This little piggy stayed home. This little piggy had roast beef. This little piggy had none.
Well, actually China’s 689 million pigs will have none—unless China imports 68 million tons of soy beans a year by 2014. That would be 17.7 million tons more of soybeans than China imported in 2010. (Just to put this in perspective, the entire soybean crop in Iowa in 2010 came to just 13.5 million tons in 2010.) And would mean that China consumes one ton out of every four produced in the world.
The cause is rising incomes in China. Meat consumption has doubled in China in the last two decades and it takes about 2.8 pounds of feed to produce a single pound of pork. The average person in China will consume a record 86.6 pounds of pork this year, compared with 43.3 pounds in 1990, according to the U.S. Department of Agriculture. Since 1990 China has also added 182 million people.
U.S. farmers won’t be the biggest beneficiaries of rising Chinese soybean imports. Read more
