We are exiting our position in Caterpillar , selling 145 shares at roughly $301 each. Following the trade, Jim Cramer’s Charitable Trust will no longer own shares in the construction equipment maker. With CAT shares trading at an all-time high on Thursday, we want to pocket a gain of 34% on our remaining 145 shares. This sale follows our trim Wednesday. Expectations for Caterpillar are simply too high for our liking, and the additional 3% rally in shares on Tuesday raises the bar even higher. While we still believe the company’s quarterly results Feb. 5 will be solid, given higher prices for its products along with declining manufacturing and freight costs, the forward guidance is concerning. Having already raised prices in last quarter, margin expansion will get tougher. Recall that in the last earnings call, management guided for a slight sequential contraction in the company’s adjusted operating profit margin. History is also against us. Analysts at JPMorgan recently reminded investors that Caterpillar stock has a history of pulling back after the company reports fourth-quarter earnings. In fact, the last time CAT shares rose on a fourth-quarter report was fiscal year 2017. This is because Caterpillar’s management team tends to underpromise and overdeliver (UPOD) by guiding conservatively to start the year. We usually don’t have an issue with UPOD. But with CAT stock at a record high, its an easy target for short sellers should guidance fail to meet Wall Street’s expectations. As a result, the analysts at JPMorgan said investors are “leaning short into the print,” or betting on a decline. Lastly, keep in mind that while Caterpillar has been fundamentally solid, at least some of the rally in the industrial sector is due to expectations of an interest rate cut this year. Investors shouldn’t invest solely on rate expectations, but it can certainly move the stock. And in our view, investors are bit too optimistic about the timing and number of cuts coming in 2024. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Read the full article here
