Asa Bridle Comments: Caterpillar (CAT) Stock Closed Lower on China Fears

 January 12, 2016, TheStreet

NEW YORK (TheStreet) — Caterpillar (CAT – Get Report) stock closed down by 2.83% to $61.49 in Monday’s trading session, as concern about demand from China pushed metals’ prices lower today. 

China accounts for roughly half of the demand for the world’s metals, according to the Wall Street Journal. 

China’s stocks plunged again today, extending a downward trend that many investors believe reflects the direction of the country’s overall economy. 

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The Shanghai Composite Index is down 16% this year, the most among the 93 global benchmark indexes tracked by Bloomberg, according to the publication. 

Prices of metals such as copper, aluminum, zinc, lead, tin and nickel all declined today, and are unlikely to receive a boost ahead of February’s Lunar New Year holiday, Reuters reports. 

"China’s stock market and base metals are reflecting uncertainty about its economy," Cantor Fitzgerald analyst Asa Bridle told Reuters. "Sentiment is the driver, there’s no let-up. We can’t see anything at the moment that will come to the rescue for metals." 

Based in Peoria, IL, Caterpillar is a manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. 

Insight from TheStreet’s Research Team: 

Jim Cramer commented on Caterpillar in a recent post on RealMoney.com. Here is a snippet of what Cramer had to say about the stock: 

We know, for example, that copper, tin, iron and aluminum remain in freefall because China, the marginal buyer of all of these goods for so long, is no longer taking in commodities of any size. We know this by watching the Baltic Freight index retreat to absurd levels below 500, demonstrating a severe decline to what has to be considered recessionary levels for China itself. Get used to China being said to be in recession. I believe it is. The fallout from the end-of-the-commodities-demand story is decimating whole companies that wwwuce or abet the wwwuction of those commodities — think everyone from Caterpillar to U.S. Steel (X) to Brazil and Indonesia and we cannot invest in this environment. 

Separately, recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer’s view or that of this articles’s author. TheStreet Ratings has this to say about the recommendation: 

We rate CATERPILLAR INC as a Hold with a ratings score of C. The primary factors that have impacted our rating are mixed – some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. Among the primary strengths of the company is its reasonable valuation levels, considering its current price compared to earnings, book value and other measures. At the same time, however, we also find weaknesses including deteriorating net income, generally higher debt management risk and poor profit margins.