11/4/2016 1BillionaireisShortingCaterpillarInc.'sStock:ShouldYou?

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1 Billionaire is Shorting
Caterpillar Inc.'s Stock: Should
You?
WhyJimChanosmightberighttobebearishaboutCaterpillarInc.
stock.
NehaChamaria (Nehams)
Nov4,2016at11:18AM

Justabouttwoweeksago,duringaninterviewwithCNBC,billionaireJimChanosrevealed
thathe'sshortCaterpillarInc.(NYSE:CAT)stock.ThenCaterpillarannounceddismalthird
quarterearningsonOct.25,sendingthestockdownalmost4%since,asofthiswriting.

Yetdoyouseehowstrongthestockhasheldthroughtheyear?It'sstillupabout20%yearto
date,reflectingthemarket'soptimismaboutCaterpillar'sprospects.Someanalystsareeven
callingitthebottomlikeDeutscheBank,whichupgradedCaterpillartoabuylastmonth,
placinga12monthtargetof$98onthestock.

Withsuchcontrastingviews,whatarethechancesChanosisgettingitrightonCaterpillar?

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11/4/2016 1BillionaireisShortingCaterpillarInc.'sStock:ShouldYou?TheMotleyFool

CATERPILLAR'SDARKDAYSAREN'TOVERYET.IMAGESOURCE:GETTYIMAGES.

Chanos'Chinafears
ChanoshasbeenbearishaboutCaterpillarforatleastthreeyearsnow,andhisthesisis
usuallybasedononetheme:China.Thistime,though,Chanosismakingaboldprediction
aboutChina'srealestateanddebtbubble.Here'swhathesaidduringhisinterviewwith
CNBC:

Thecollapsehasnothappened.Theunwindhasnothappened.That'saheadofus,not
behindus.

IfChanos'fearscometrue,itcouldsoundthedeathknellforCaterpillar'sturnaroundforsome
years.WhileCaterpillardoesn'tgiveadetailedgeographicbreakdownofitsearnings,the
AsiaPacificregionaccountedfor20%ofitsmachinerysaleslastyear,withChinacountingas
aprioritygrowthmarketeversincethecompanyacquiredBucyrusInternationalin2011.

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11/4/2016 1BillionaireisShortingCaterpillarInc.'sStock:ShouldYou?TheMotleyFool

CATDATABYYCHARTS

What'smore,abubbleinChinaisboundtohaverippleeffectsonothereconomies,which
couldhitCaterpillarfromallsides.

Beware:Constructionmarketsarewarningyou
What'sworrisomeisthatsomeofthekeyglobalconstructionmarketsarealreadyshowing
signsofstress.ConstructionequipmentmanufacturerManitowocCompany(NYSE:MTW)
recentlyprovidedshockinglydismalpreliminarynumbersforitsthirdquarter,expectingitsQ3
lossesfromcontinuingoperationstomorethanquadrupleyearoveryearondoubledigit
declineinordersandbacklogsfornewequipment.NowCaterpillarhasdowngradedits
outlookfortherestoftheyearfortheNorthAmericanconstructionmarkets.

Thebiggestwarningsignals,however,arecomingfromRitchieBros.Auctioneers
(NYSE:RBA)theworld'slargestheavyequipmentauctioneerandaleadingusedequipment
seller.RitchieBros.closeditslargesteverauctionlastmonth,sellingequipmentworthmore
than$76millionintwodays.Caterpillar'scrawlerpipelayersandtractorsdatedbetween2007
and2012werehotsellers.Sure,thatreflectsCaterpillar'sbrandpower,butrisingdemandfor
usedequipmentevenasordersfornewmachinesaredryingupisalsoasurefiresignof
troubledunderlyingmarkets.

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11/4/2016 1BillionaireisShortingCaterpillarInc.'sStock:ShouldYou?TheMotleyFool

ANAUCTIONUNDERWAYATRITCHIEBROS.IMAGESOURCE:RITCHIEBROS.

It'sbriskbusinessforauctioneerssuchasRitchieBroswhenequipmentmanufacturers
struggletosellmachines.Andthat'sexactlywhat'shappeningnow:Construction,mining,and
oilandgascompaniesareputtingofffreshpurchasesandturningtorentalsandauctioneers
toreplaceagingfleetsastheytightentheirpursestrings.Infact,there'snobiggerevidenceof
thetrendthanCaterpillar'sownalliancewithRitchieBros.thatitstruckinAugusttoprovideits
dealersaplatformtoauctionoldequipment.

Caterpillar'sproblemsdon'tendthere

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11/4/2016 1BillionaireisShortingCaterpillarInc.'sStock:ShouldYou?TheMotleyFool

ButChinaandtheconstructionmarketsaren'ttheonlyproblemsCaterpillarhastodealwith.
Thecompanyjustdowngradeditsfullyearearningsoutlookto$2.35pershare,asdemand
frommining,oilandgas,andrailroadsweakened.That'shalfofwhatCaterpillarearnedin
2015.

Worseyet,Caterpillarexpectsits2017revenuetobesimilartothisyear's,dimminghopesof
arecoveryinendmarketsinthenearfuture.Minersandoilcompaniesareunlikelytorevive
stalledprojectsandpurchasenewequipmentunlesscommoditypricesstabilize.Noone
knowswhereoilisheaded,andindustryexpertsexpectironorepricestocooloffaftera
massiverunupinrecentmonths.

TheprolongeduncertaintyinendmarketshasalreadyforcedCaterpillartoresorttodesperate
measures.Caseinpoint:theearlyretirementofCEODougOberhelman.

WhatcanthenewCEOdo?
Inasurprisingdevelopmentmidlastmonth,Oberhelmanannouncedthathe'llretireasCEO
inJanuary,atleastayearaheadofschedule.Notsurprisingly,it'slargelyseenasaprice
Oberhelmanhastopayforsomeofhisdecisionsovertheyearsthathaveonlyworsened
thingsforCaterpillar.TheexorbitantBucyrusacquisitionthatcostroughly$8billionatthe
peakoftheminingindustryisthebiggestexample.Oberhelman'sbetonminingwasn'twrong,
persehistimingwasjustunfortunate.

Forinvestors,thissuddenmanagementshakeuponlyadds
totheuncertainty.Oberhelmanisexitingatacritical
juncture,leavingtheincomingCEO,JimUmpleby
currentlythegrouppresidentforenergyandtransportation
withanuphilltaskathandtosteerCaterpillarthroughthe
slump.

UnderOberhelman'sguidance,thecompanyhasalready JIMUMPLEBYWILLTAKEOVERASCEOEFFECTIVEJANUARY
1,2017.IMAGESOURCE:CATERPILLAR.
beenaggressivelyshuttingdownplantsandlayingoff
employeesforacoupleofyearsnow.ItremainstobeseenwhatelseUmplebycandoto
keepCaterpillar'sheadabovewater.

Chanosmighthavehiswayhere
It'salongroadtorecoveryforCaterpillar,andinvestorsmightbebetteroffstayingawayuntil
theendmarketsimprove.Withthestockclimbingsubstantiallythisyearandtradingata
premiumbasedonnearlyeverykeyvaluationmetric,includingpricetoearnings,pricetocash
flow,andpricetobookvalue,Iwouldn'tbesurprisedifChanos'shortbetonCaterpillarpays
offinthemonthstocome.

10stockswelikebetterthanCaterpillar
WheninvestinggeniusesDavidandTomGardnerhaveastocktip,itcanpaytolisten.After
all,thenewslettertheyhaverunforoveradecade,MotleyFoolStockAdvisor,hastripledthe
market.*

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11/4/2016 1BillionaireisShortingCaterpillarInc.'sStock:ShouldYou?TheMotleyFool

DavidandTomjustrevealedwhattheybelievearethetenbeststocksforinvestorstobuy
rightnowandCaterpillarwasn'toneofthem!That'srighttheythinkthese10stocksare
evenbetterbuys.

Clickheretolearnaboutthesepicks!

*StockAdvisorreturnsasofOctober3,2016

NehaChamariahasnopositioninanystocksmentioned.TheMotleyFoolhasnopositioninanyofthe
stocksmentioned.TryanyofourFoolishnewsletterservicesfreefor30days.WeFoolsmaynotallholdthe
sameopinions,butweallbelievethatconsideringadiverserangeofinsightsmakesusbetterinvestors.The
MotleyFoolhasadisclosurepolicy.

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AUTHOR

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11/4/2016 1BillionaireisShortingCaterpillarInc.'sStock:ShouldYou?TheMotleyFool

NehaChamaria
(Nehams)
NehahasbeencontributingtoFool.comsince2011,includingaoneyearstintattheFoolishBloggingNetwork.Shefocuseson
materialsandindustrialssectors,withspecialinterestinfertilizers,chemicals,andheavyequipmentcompanies.Nehaloves
decoding10Qsand10Kstodigoutinformationaboutacompanyaninvestorwouldotherwisenotknowandcrackingthereal
reasonsbehindastocksmovethrillsher.CheckbackatFool.comforherarticles,orfollowheronTwitter

Follow@nehamschamaria 1,702followers

ARTICLEINFO

Nov4,2016at11:18AM

Industrials

STOCKS

Caterpillar
NYSE:CAT
$82.21 $0.94 (1.16%)

RitchieBros.
NYSE:RBA
$34.61 $0.33 (0.96%)

Manitowoc
NYSE:MTW
$3.84 $0.17 (4.63%)

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11/4/2016 1BillionaireisShortingCaterpillarInc.'sStock:ShouldYou?TheMotleyFool

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Automobiles Jumped 14% Last
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11/4/2016 1BillionaireisShortingCaterpillarInc.'sStock:ShouldYou?TheMotleyFool

Astrongerthanexpectedthirdquarterearningsreportgavesome
investorsgoodreasonstobuy.
JohnRosevear (TMFMarlowe)
Nov3,2016at2:04PM

STRONGRAMPICKUPSALESHELPEDBOOSTFCA'SPROFITMARGININNORTHAMERICALASTQUARTER.IMAGESOURCE:
FIATCHRYSLERAUTOMOBILES.

Whathappened
SharesofItalianAmericanautomakerFiatChryslerAutomobilesN.V.(NYSE:FCAU)surged
inOctober.Afterclosingatjust$6.40onthelastdayofSeptember,sharessurgedto$7.32at
theendofthedayonOct.31againofalmost14.4%forthemonth.

Aswecanseefromthischart,thesharesreallystartedtoclimbonOct.25,whenFCA
reporteditsthirdquarterearningsresult.

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11/4/2016 1BillionaireisShortingCaterpillarInc.'sStock:ShouldYou?TheMotleyFool

FCAUDATABYYCHARTS.

Sowhat
FCA'searningsreportincludedseveralpiecesofgoodnewsforinvestors.

FCA'sadjustedpretaxprofitof1.5billioneuros($1.66billion)beatanalysts'estimateof1.4
billioneuros.

Thecompanyraiseditsfullyearguidanceforrevenue,pretaxprofit,andnetprofit.
ThepretaxprofitmargininFCA'sNorthAmericaunitroseto7.6%from6.7%ayearago.
That'sstillfarbehindGeneralMotors'11.2%margin,butitrepresentsgoodprogressona
metricthat'sveryimportanttoinvestors.

Thecompanypostedstrongpretaxprofitof104millioneurosinEurope,onsalesgains
thatoutpacedtheindustry'sgrowth.
Itreporteda52%yearoveryearincreaseinsalesinChina,whereSUVdemandishigh
andFCAhasbegunproducingJeepslocally.

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11/4/2016 1BillionaireisShortingCaterpillarInc.'sStock:ShouldYou?TheMotleyFool

Nowwhat
FCA'sstockisstillariskierbetthanmanyofitsglobalrivals.Thecompanyhadasobering
25.3billioneurosofdebtasofSept.30,itsambitiousfiveyearproductoverhaulplanis
behindschedule,andFCAappearstolagtheindustryinthedevelopmentandadoptionof
advancedtechnology.

ButifitcansustainthisrecentprogressamidsignsthattheU.S.newcarmarketissoftening,
theinvestorswhojumpedinafteritsearningsreportcouldberewarded.

10stockswelikebetterthanApple
WheninvestinggeniusesDavidandTomGardnerhaveastocktip,itcanpaytolisten.After
all,thenewslettertheyhaverunforoveradecade,theMotleyFoolStockAdvisor,hastripled
themarket.*

DavidandTomjustrevealedwhattheybelievearethetenbeststocksforinvestorstobuy
rightnowandApplewasn'toneofthem!That'srighttheythinkthese10stocksareeven
betterbuys.

Clickheretolearnaboutthesepicks!

*StockAdvisorreturnsasofOctober3,2016

Theauthor(s)mayhaveapositioninanystocksmentioned.TheMotleyFoolownsandrecommendssharesofApple.

JohnRosevearownssharesof,andtheMotleyFoolrecommends,GeneralMotors.TryanyofourFoolish
newsletterservicesfreefor30days.WeFoolsmaynotallholdthesameopinions,butweallbelievethat
consideringadiverserangeofinsightsmakesusbetterinvestors.TheMotleyFoolhasadisclosurepolicy.

ForgetNetflix!WeThinkThese3CompaniesAreReadytoTake
Off
Letsfaceit...cabletelevisionisonitswayoutandthedeathofTVmeansthe$2.2
trillionentertainmentindustryisripeforthepicking.Rightnow,theresagolden

http://www.fool.com/investing/2016/11/04/1billionaireisshortingcaterpillarincsstocks.aspx 11/14
11/4/2016 1BillionaireisShortingCaterpillarInc.'sStock:ShouldYou?TheMotleyFool

opportunitytohijackcablesprofitsasAmericanscontinueditchingcable.Becausewe
thinkthreestocksarepoisedtosurgenowthatcableTV'sdaysarenumbered.And
youdbesurprisedNetflixandAmazon.comarentevenonthelist!Clickhereto
learnmore.

AUTHOR

JohnRosevear
(TMFMarlowe)
JohnRosevearistheseniorautospecialistforFool.com.Johnhasbeenwritingabouttheautobusinessandinvestingforover
20years,andforTheMotleyFoolsince2007.

Follow@jrosevear

ARTICLEINFO

Nov3,2016at2:04PM

Industrials

STOCKS

FiatChrysler
NYSE:FCAU
$6.80 $0.01 (0.15%)

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11/4/2016 1BillionaireisShortingCaterpillarInc.'sStock:ShouldYou?TheMotleyFool

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