August 5, 2023
My next book, The Maverick Investor, A Beginner’s Portfolio for Lifelong Wealth, will encourage proper investing and rejecting self-serving Wall Street approaches.
The book will be available in eBook form from this website at a small cost. In several formats, including eBook, and soft and hardcover printed versions, the book will be available from Amazon, Kobo, Draft To Digital, and many D2D affiliates.
In the book and the online support, I make liberal use of market data from reputable sources such as Investing.com, FinViz.com, StockCharts.com, TipRanks.com, Finance.Yahoo.com, MarketBeat.com, and Value Line, widely used in the financial industry. This information and my guidance are intended only for educational and informational purposes and should not be considered personalized or specific investment guidance.
My followers will also receive free weekly, monthly, and quarterly blogs and articles in the Maverick part of the new website under development. This article includes an example of what to expect from my ongoing studies in each portfolio stock.
For The Maverick Investor, I selected twelve blue-chip stocks from the Dow 30 for consideration. I chose eight to start the portfolio designed for novice investors, including Caterpillar Inc (NYSE: CAT).
A key reason for choosing a Dow 30 company is that Value Line provides in-depth quarterly data, analysis, and commentary on company performance and market dynamics, offering investors valuable insights at no cost.
As a premium service for experienced investors, Value Line reports comprehensively analyze about 1700 companies, but Dow 30 quarterly reports are free.
Based on the Value Line reports from Dominic B. Silva analyzing Caterpillar’s performance in 2023, there are several key points of interest and notable changes for Maverick Investor followers to consider.
- Strong Financial Performance:
- Q4 2022 Report: Caterpillar experienced a favorable fourth quarter in 2022, with a more-than-expected 20% increase in sales to $16.597 billion. The company achieved this growth through a combination of price increases and higher sales volume, which offset the negative impact of currency fluctuations and elevated manufacturing costs.
- Q1 2023 Report: Caterpillar continued its impressive performance in the first quarter of 2023, with a 17% increase in sales to $15.86 billion. The company benefited from strong price gains, higher volume, and lower manufacturing costs, resulting in a notable operating margin of 21.1%.
- Q2 2023 Report: The second quarter of 2023 saw Caterpillar’s sales surge to $17.3 billion, surpassing expectations. The company experienced strong demand from various end markets, especially construction and mining. Dealers ‘ higher prices and inventory replenishment efforts contributed to the positive results, leading to an adjusted operating profit margin of around 21%.
- Margin Improvement:
- Q4 2022 Report: Caterpillar achieved an adjusted operating margin of 17.0% in the fourth quarter of 2022, a significant improvement compared to the 11.4% posted in the same period of the previous year. This improvement was attributed to effective management of manufacturing costs and favorable pricing dynamics.
- Q1 2023 Report: The first quarter of 2023 witnessed a further enhancement of Caterpillar’s operating margin, reaching 21.1%. The company managed to keep manufacturing costs under control, contributing to the margin expansion.
- Q2 2023 Report: Caterpillar continued its margin improvement trend, with an adjusted operating profit margin of approximately 21% in the second quarter. This was a substantial increase from the 14% margin recorded in the same period the previous year.
- Market Outlook and Concerns:
- Q4 2022 Report: Caterpillar expressed optimism for 2023, expecting favorable prices to increase sales. However, the company anticipated a modest gain due to what was perceived as decent market demand. Concerns were raised about high freight and material costs, as well as a slow recovery in demand from China.
- Q1 2023 Report: Caterpillar maintained a positive outlook for the year but highlighted the likelihood of a sequential slowdown in the latter part of 2023. The report also mentioned potential challenges from restocking efforts and the absence of favorable cost absorption in the first quarter.
- Q2 2023 Report: The report acknowledged that while Caterpillar expected favorable results in the next quarter, there could be a sequential slowdown due to normalized inventory levels, potential softer business in China’s construction market, and a potential global economic slowdown.
- Investor Sentiment:
- Q4 2022 Report: Despite Caterpillar’s strong performance, investors reacted negatively to the earnings that fell slightly short of consensus expectations. The report also mentioned concerns about high freight and material costs impacting the EBITDA margin.
- Q1 2023 Report: The report noted that sector weakness had recently weighed on Caterpillar’s share value, leading to a potentially favorable entry point for momentum accounts.
- Q2 2023 Report: Caterpillar’s share value experienced a surge, up 22% since the May report, reaching a record high. The proprietary ranking system suggested that the stock would outperform in the next six to 12 months. But the report cautioned investors about the stock’s current valuation and its potential impact on long-term prospects.
- Geographic and Market Segment Performance:
- Caterpillar’s geographic and market segment performance remained a key factor throughout the reports, mentioning strength in key categories such as Construction Industries, Resource Industries, and Energy & Transportation.
Let’s compare the key financial metrics from the last three Caterpillar financial reports (4Q2022, 1Q2023, and 2Q2023):
Sales per Share (in USD):
- 4Q2022: $120.40
- 1Q2023: $123.30
- 2Q2023: $128.55
Cash Flow per Share (in USD):
- 4Q2022: $19.95
- 1Q2023: $21.40
- 2Q2023: $23.50
Earnings per Share (EPS) (in USD):
- 4Q2022: $15.20
- 1Q2023: $16.65
- 2Q2023: $19.05
Dividends Declared per Share (in USD):
- 4Q2022: $4.68
- 1Q2023: $4.68
- 2Q2023: $5.00
Capital Spending per Share (in USD):
- 4Q2022: $4.85
- 1Q2023: $4.85
- 2Q2023: $4.95
Book Value per Share (in USD):
- 4Q2022: $31.70
- 1Q2023: $31.70
- 2Q2023: $38.55
Common Shares Outstanding:
- 4Q2022: 515.00 million shares
- 1Q2023: 515.00 million shares
- 2Q2023: 507.00 million shares
Operating Margin:
- 4Q2022: 22.0%
- 1Q2023: 22.5%
- 2Q2023: 21.5%
Net Profit Margin:
- 4Q2022: 23.0%
- 1Q2023: 23.0%
- 2Q2023: 20.0%
Return on Total Capital:
- 4Q2022: 20.5%
- 1Q2023: 23.5%
- 2Q2023: 23.0%
Return on Shareholder’s Equity:
- 4Q2022: 32.5%
- 1Q2023: 40.5%
- 2Q2023: 36.5%
Retained to Common Equity:
- 4Q2022: 30.0%
- 1Q2023: 28.0%
- 2Q2023: 26.0%
All Dividends to Net Profit:
- 4Q2022: 28%
- 1Q2023: 25%
- 2Q2023: 26%
These comparisons reveal several trends and changes over the three quarters:
- Sales and Earnings Growth: Sales and earnings per share have consistently increased over the three quarters, indicating strong business performance.
- Cash Flow: Cash flow per share has steadily increased, indicating a healthy cash generation capability.
- Dividends: Dividends declared per share remained relatively stable in the first two quarters but increased in the third quarter.
- Capital Spending: Capital spending per share remained relatively stable throughout the quarters.
- Margins: Operating margin saw some fluctuations, but overall remained healthy. Net profit margin decreased in 2Q2023 compared to the previous quarters.
- Book Value: Book value per share increased notably in 2Q2023.
- Return on Equity and Total Capital: Both return on equity and return on total capital increased significantly in 1Q2023, but there was a slight decline in 2Q2023.
- Retained Earnings: The percentage of retained earnings to common equity decreased over the quarters.
- Common Shares Outstanding: The number of outstanding shares decreased slightly over the quarters.
- Dividends to Net Profit: The percentage of all dividends to net profit decreased in 1Q2023, then increased in 2Q2023.
Conclusion: Caterpillar showed a consistent trend of strong financial performance from improvements in sales, earnings, cash flow, return on equity, margin improvement, and an overall positive market outlook in 2023. Fluctuations in some metrics, such as margins and retained earnings, might indicate changes in the company’s business environment and strategies. However, there are concerns about potential slowdowns, challenges in specific markets (such as China), and investor sentiment.
The Maverick Investor back cover promotion:
Why read Maverick Investor?
Bill Cara has written a book for novices, students, career-changers, and retirees who seek to build a lifelong securities portfolio. You are encouraged to break away from ubiquitous and overwhelming Wall Street advice and become a maverick investor, confident in your simple yet effective strategy.
By taking the “boring” maverick approach to investing, tailored to your needs and focusing on a well-understood portfolio, impressive results are within reach. You will discover the book’s essence through mindset development, creating a portfolio of just ten prominent companies, fully understanding the risks and rewards of your investments, and seeking support when you need it.
Free ongoing education through daily commentary, weekly articles, and a monthly report will be available at billcara.com to keep you on track for success.
You can unlock the potential of your investments today with “Maverick Investor” and embark on a lifelong journey towards financial empowerment and growth with the help of an industry guru who became Forbes “Best of the Web.”