Buy, sell or hold Caterpillar?

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millewk
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Buy, sell or hold Caterpillar?

Post by millewk » Sun Sep 04, 2016 10:33 am

Caterpillar buy or hold? I worked for the company for 33 years and I still have 6000 shares, 5500 in my trust brokerage acct and 500 in my 401k. It still pays a good dividend which I reinvest. Maybe I'm just getting nervous in my old(er) age but this commodities dip feels different somehow! Your thoughts?

livesoft
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Re: Buy, sell or hold Caterpillar?

Post by livesoft » Sun Sep 04, 2016 10:42 am

My standard advice is to give away to charity if possible or otherwise sell. That's because it is an individual stock and that's my advice for all individual stocks no matter what the ticker symbol is or what line of business it is.

It seems in this case, it looks like emotions are making the decision cloudy.
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Re: Buy, sell or hold Caterpillar?

Post by Geologist » Sun Sep 04, 2016 10:51 am

As livesoft's answer exemplifies, most participants in this board are not advocates for holding individual stocks or analyzing their prospects. Instead, we advocate holding widely diversified mutual funds or ETF's. So, by and large, if you want an opinion on Caterpillar, you have come to the wrong discussion board.

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Re: Buy, sell or hold Caterpillar?

Post by Grt2bOutdoors » Sun Sep 04, 2016 11:55 am

Relative to your total net worth, how much does 6000 sh. of CAT amount to percentage wise? Are you talking about 5% or 50% or greater of net worth? I would not want 50% of my net worth riding on any one individual security or even a basket of 10 securities, you drop that basket and you'll wind up with egg all over your shoes.

Recent announcements - give you a warm fuzzy feeling? CAT to close Belgium plant, layoff 2,000 workers (a few days ago). A day ago, CAT to lay off 300 workers in Peoria, Illinois......

Financials - looks like the dividend is safe for now. The bad news, revenues are still declining (down in 2015, down for the first half of 2016), profits are declining. A few more quarters of this, and your "good" dividend will be up on the chopping block. It's not sustainable when profits are falling off the cliff..... http://www.caterpillar.com/content/dam/ ... esults.pdf
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unclescrooge
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Re: Buy, sell or hold Caterpillar?

Post by unclescrooge » Sun Sep 04, 2016 12:17 pm

millewk wrote:Caterpillar buy or hold? I worked for the company for 33 years and I still have 6000 shares, 5500 in my trust brokerage acct and 500 in my 401k. It still pays a good dividend which I reinvest. Maybe I'm just getting nervous in my old(er) age but this commodities dip feels different somehow! Your thoughts?
If your assets base is so large that this is less than 10% of your holdings, you can keep it. Otherwise, you should diversify.

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Re: Buy, sell or hold Caterpillar?

Post by tampaite » Sun Sep 04, 2016 6:36 pm

millewk wrote:Caterpillar buy or hold? I worked for the company for 33 years and I still have 6000 shares, 5500 in my trust brokerage acct and 500 in my 401k. It still pays a good dividend which I reinvest. Maybe I'm just getting nervous in my old(er) age but this commodities dip feels different somehow! Your thoughts?
6000 shares gives you about ~$18,500/year. I'd keep it unless you can find an alternative investment that can provide you the same return with less risk.

That said, 6000 shares is about $500K in value so not knowing what % of this amount is your net-worth, it's tough to say.

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Re: Buy, sell or hold Caterpillar?

Post by Dontridetheindexdown » Sun Sep 04, 2016 8:06 pm

I agree 100% with tampaite, the previous poster.

$18K annual dividend to reinvest quarterly, and most likely well under $180K cost basis, you are receiving 10% ROI.

Caterpillar has paid a dividend every year since 1925, quarterly dividends since 1933.

All those server farms (Amazon, Facebook, Google) have 100% backup diesel power.

Caterpillar is a big gorilla in diesel power, also in natural gas power, and gas turbine power.

You worked for one of the most amazing firms in history, present management is the best ever.

I say hold and continue to reinvest, regardless of how large or small a portion of your worth.

You can PM me if you like. [OT comment removed by moderator prudent]

Note to those [talking - moderator prudent] about layoffs: reducing labor costs is one of many tactics which allow firms to survive and thrive.

Also, yes, the subsequent poster is correct, we are in a deflationary situation, which makes reinvesting in Caterpillar even more exciting.

Hold on to your shares and continue to reinvest, others only wish they could own them at your cost basis.
Last edited by Dontridetheindexdown on Sun Sep 04, 2016 8:14 pm, edited 6 times in total.

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Re: Buy, sell or hold Caterpillar?

Post by itstoomuch » Sun Sep 04, 2016 8:07 pm

Diversity or buy some insurance (either puts or covered calls).
IMO we are in a deflationary era with a falling population in the developed countries.
YMMV
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Re: Buy, sell or hold Caterpillar?

Post by letsgobobby » Sun Sep 04, 2016 8:59 pm

Pure Bogleheadednesss demands no individual stocks and I don't own any. One of the great benefits of being a Boglehead is not having to think about individual stocks. Therefore I would recommend selling anything that didn't incur a capital gain and replacing with a diversified low cost stock index.

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Re: Buy, sell or hold Caterpillar?

Post by grabiner » Sun Sep 04, 2016 9:03 pm

tampaite wrote:
millewk wrote:Caterpillar buy or hold? I worked for the company for 33 years and I still have 6000 shares, 5500 in my trust brokerage acct and 500 in my 401k. It still pays a good dividend which I reinvest. Maybe I'm just getting nervous in my old(er) age but this commodities dip feels different somehow! Your thoughts?
6000 shares gives you about ~$18,500/year. I'd keep it unless you can find an alternative investment that can provide you the same return with less risk.
You can, because dividends are not return; the value of a stock grows from both dividends and price appreciation. You wouldn't get quite as much in dividends with, say, VTV, Vanguard Value ETF, or VVIAX, Vanguard Value Index Admiral Shares, with a 2.61% yield (versus 3.77% for CAT). But you would get about the same expected return, and with much less risk because the index has hundreds of stocks with no more than 5% in any one stock. I chose this index not because it is the best, but because it is the index which holds stocks like CAT; CAT is about 0.5% of the index.

If all you want is dividends, VCLT, Vanguard Long-Term Corporate Bond ETF, has a 4% yield (versus 3.77% for CAT), and bonds are much less risky than stocks. However, bonds don't tend to perform as well as stocks; the return of a bond fund is almost entirely from the dividends. (In addition, this will cost you more in taxes.)
Dontridetheindexdown wrote:$18K annual dividend to reinvest quarterly, and most likely well under $180K cost basis, you are receiving 10% ROI
ROI is based on the current value of your investment, not what you paid for it. If you and I hold the same stock, but I bought more recently and thus paid twice as much, I won't be any better off selling the stock than you would be (except for tax issues).

And it is also properly computed from total return, not dividends. Over the last year, the stock has returned 11.39%, because it rose in value as well as paying dividends. (But that isn't as good as the US market as a whole, and over the last ten years, it has returned only 4.32%, which is worse than the market as a whole;.)
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Re: Buy, sell or hold Caterpillar?

Post by Runner01 » Sun Sep 04, 2016 9:25 pm

Dontridetheindexdown wrote:I agree 100% with tampaite, the previous poster.

$18K annual dividend to reinvest quarterly, and most likely well under $180K cost basis, you are receiving 10% ROI.

Caterpillar has paid a dividend every year since 1925, quarterly dividends since 1933.

All those server farms (Amazon, Facebook, Google) have 100% backup diesel power.

Caterpillar is a big gorilla in diesel power, also in natural gas power, and gas turbine power.

You worked for one of the most amazing firms in history, present management is the best ever.

I say hold and continue to reinvest, regardless of how large or small a portion of your worth.

You can PM me if you like. [OT comment removed by moderator prudent]

Note to those [talking - moderator prudent] about layoffs: reducing labor costs is one of many tactics which allow firms to survive and thrive.

Also, yes, the subsequent poster is correct, we are in a deflationary situation, which makes reinvesting in Caterpillar even more exciting.

Hold on to your shares and continue to reinvest, others only wish they could own them at your cost basis.
CAT has underperformed S&P 500 over the past 10 years.
Last edited by Runner01 on Sun Sep 04, 2016 9:38 pm, edited 2 times in total.

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Re: Buy, sell or hold Caterpillar?

Post by nedsaid » Sun Sep 04, 2016 9:26 pm

millewk wrote:Caterpillar buy or hold? I worked for the company for 33 years and I still have 6000 shares, 5500 in my trust brokerage acct and 500 in my 401k. It still pays a good dividend which I reinvest. Maybe I'm just getting nervous in my old(er) age but this commodities dip feels different somehow! Your thoughts?
I have nothing against owning individual stocks, I do and they are about 12% or so of my retirement portfolio. Actually, I wouldn't mind owning some Caterpillar stock. If you have 6,000 shares, that translates to $490,000 at today's prices. As much as I would love to own this stock, I think you are showing too much love.

Two of the stocks I owned merged and the shares were just over 3% of my portfolio. It seemed to me like that was too much to have it one stock. So I sold off a chunk and now it is 2% of my portfolio. I felt that I had a fiduciary duty to myself to be properly diversified.

The standard recommendation is that no one should have more than 5% of their net worth and at most 10% in the stock of one company, particularly if you work for that company. I think of the employees at Washington Mutual and Enron who not only lost their investment in the company but also their jobs. My guess is that you have 20% or more of your net worth in this one stock and that is just too much. I don't think Caterpillar is the next Enron or Washington Mutual, in fact the prospects of the company are probably very good.

It is instructive that Bill Gates has been selling down his stake in Microsoft for many years now and diversifying his holdings. I think that is smart and it is a big clue to the rest of us. Just imagine that you were a third party investment advisor with a fiduciary duty to you, the original poster. What would he or she do? My suspicion is that the advisor would stop reinvesting the dividends and start selling down your stake in Caterpillar. If diversification is a good idea for Bill Gates, it is a good idea for you.

You have embedded capital gains in your stock. I would sell this down over time to minimize your tax bite. I would probably over time sell this down to $100,000 or so.

Congratulations in accumulating a nice sum in your employer's stock. Good job. Prudence dictates that you spread your risk and diversify. You have a huge investment in just one company in just one industry. You are taking too much risk. Diversify and get going soon.
A fool and his money are good for business.

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Re: Buy, sell or hold Caterpillar?

Post by letsgobobby » Sun Sep 04, 2016 11:14 pm

You can also donate anything with a large capital gain. That would reduce your holdings, avoid taxes, and meet your charitable objectives at the same time.

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reriodan
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Re: Buy, sell or hold Caterpillar?

Post by reriodan » Sun Sep 04, 2016 11:33 pm

If you have the equivalent amount of money in cash, would you buy CAT stock or something else? That will tell you your answer.

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Re: Buy, sell or hold Caterpillar?

Post by mephistophles » Mon Sep 05, 2016 12:42 am

millewk wrote:Caterpillar buy or hold? I worked for the company for 33 years and I still have 6000 shares, 5500 in my trust brokerage acct and 500 in my 401k. It still pays a good dividend which I reinvest. Maybe I'm just getting nervous in my old(er) age but this commodities dip feels different somehow! Your thoughts?
Unless I am missing something in my advanced age, selling the 6000 shares would result in capital gains taxes. I wouldn't sell those. Draw dividends as needed and allow stepped up basis at death. The shares in your 401k I would probably diversify into equity or short term bond funds based on your asset allocation.

That said, IMHO Caterpillar replaced General Motors as one of the most solid blue chip stocks in the U. S. Even so, diversify as much as possible and practical tax wise.
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Re: Buy, sell or hold Caterpillar?

Post by Valuethinker » Mon Sep 05, 2016 6:30 am

millewk wrote:Caterpillar buy or hold? I worked for the company for 33 years and I still have 6000 shares, 5500 in my trust brokerage acct and 500 in my 401k. It still pays a good dividend which I reinvest. Maybe I'm just getting nervous in my old(er) age but this commodities dip feels different somehow! Your thoughts?
This is a huge amount of money.

As others say, if it is more than 10% of your wealth, you need to diversify.

Sell the 401k ones immediately. That costs you nothing? No taxes, etc.

Stop reinvesting the dividends in the stock. That simply increases your exposure.

You can then sell down the rest, slowly, until it is no more than 10% (or, say, 15%) of your total portfolio.

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Re: Buy, sell or hold Caterpillar?

Post by beammeupscotty » Mon Sep 05, 2016 7:34 am

You mean you've been on this board for over 6 years and are finally getting around to thinking about this? If you had sold Caterpillar and bought Vanguard Total Stock Market Index on the day you joined, your $490K of CAT would instead be worth $631K (with a lot less volatility). Hmmmm...

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Re: Buy, sell or hold Caterpillar?

Post by grabiner » Mon Sep 05, 2016 8:44 am

mephistophles wrote:
millewk wrote:Caterpillar buy or hold? I worked for the company for 33 years and I still have 6000 shares, 5500 in my trust brokerage acct and 500 in my 401k. It still pays a good dividend which I reinvest. Maybe I'm just getting nervous in my old(er) age but this commodities dip feels different somehow! Your thoughts?
Unless I am missing something in my advanced age, selling the 6000 shares would result in capital gains taxes. I wouldn't sell those. Draw dividends as needed and allow stepped up basis at death. The shares in your 401k I would probably diversify into equity or short term bond funds based on your asset allocation.
If you do this, and if the single-stock holding is a large fraction of your net worth, you might want to reduce your risk by buying out-of-the-money put options. If the company gets into trouble, it will lose a large part of its stock value, and also cut its dividend. With the stock trading at $82.19, you could buy a put option at, say, $60. This will ensure that you can't lose more than a quarter of your stock value (and if you do lose a large part of the stock value, you'll be able to reduce your exposure by selling shares with capital losses, so you won't need as much of a put to protect yourself from further losses).

The downside is that the put option costs money. Essentially, it's an insurance policy. You have insurance to protect your standard of living if your car crashes or your house burns down, and since you would have a large cost for selling this one stock, you can protect yourself against the risk that the stock would crash.

And I agree with several other posters: reduce your risk when you can do so without a tax cost. Sell any shares which don't have a capital gain, or which are in your 401(k). Don't buy more shares. If you make large donations to charity, donate this stock, which allows you to get rid of stock without paying tax on the capital gain.
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Re: Buy, sell or hold Caterpillar?

Post by Grt2bOutdoors » Mon Sep 05, 2016 9:01 am

Dontridetheindexdown wrote:
You can PM me if you like. [OT comment removed by moderator prudent]

Note to those [talking - moderator prudent] about layoffs: reducing labor costs is one of many tactics which allow firms to survive and thrive.

Also, yes, the subsequent poster is correct, we are in a deflationary situation, which makes reinvesting in Caterpillar even more exciting.

Hold on to your shares and continue to reinvest, others only wish they could own them at your cost basis.
Do you work for Caterpillar? Are you in management?

Investing should be as exciting as watching paint dry on a wall. Anyone who gets excited about "investing", is not investing, they are speculating. There are other avenues for speculation that don't involve holding $500K on the line and praying that the winds are more favorable next quarter.

[OT comment removed by moderator prudent]
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Re: Buy, sell or hold Caterpillar?

Post by BeBH65 » Mon Sep 05, 2016 9:32 am

millewk wrote:Caterpillar buy or hold? I worked for the company for 33 years and I still have 6000 shares, 5500 in my trust brokerage acct and 500 in my 401k.
One of the key bogleheads principles is diversification. We do not like the risk that is linked to gambling on one stock. One of the previous replies mentioned "Caterpillar replaced General Motors as one of the most solid blue chip stocks", will caterpillar go the same route as GM....?
Based on the previous replies Caterpillar also does not seem to have done dramatically better the the S&P 500 or total market index funds.

So I add a vote to diversify.

1- stop the reinvestment of the dividends today
2- sell the stocks in your 401k, suggest to exchange that to a diversified index fund
3- use the highest appreciated portion to establish a Donor Advised Fund to cover your charity contributions for the next 10-20 years
4- sell the positions on which you have a loss - it looks like some of the additional purchases would be showing a loss.
5- sell winners up to the amount of your losses
6- Make a plan how you can sell the remainder of the Caterpillar stock over the next years: consider gifting to family members who could sell at a lower tax %, ...
Last edited by BeBH65 on Mon Sep 05, 2016 11:45 am, edited 1 time in total.
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Re: Buy, sell or hold Caterpillar?

Post by itstoomuch » Mon Sep 05, 2016 11:24 am

So what else does OP have besides CAT?
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Re: Buy, sell or hold Caterpillar?

Post by patrick013 » Mon Sep 05, 2016 12:11 pm

I think commodity (corn) prices are so low equipment sales
are down. It is certainly having a few years of earnings
decline. I see it often in dividend indexes.

Fair value is $70 estimated. It needs to post some $4 - 5 EPS
to get back to $90 - 100 share price. Until then enjoy the
dividends which it is trying to maintain rather than increase
business investment, while decreasing those extra costs.

In several or more years I'd sell it at $90 - 100 and try something else.
The largest construction and mining and farm equipment manufacturer
in the world should continue to be the big fish in the lake.
age in bonds, buy-and-hold, 10 year business cycle

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Re: Buy, sell or hold Caterpillar?

Post by SGM » Mon Sep 05, 2016 12:27 pm

I have been selling individual stocks a little bit each year in order to diversify. You can sell your 500 shares in your 401k immediately without a tax consequence. My goal is to keep any individual stock holding below a certain total value. I have also donated some stocks with LT capital gains. I will have a certain residual amount of individual stocks that will receive a stepped up basis at some point. I would immediately stop reinvesting dividends in your taxable account. They are better off being reallocated or spent.

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Re: Buy, sell or hold Caterpillar?

Post by rgs92 » Mon Sep 05, 2016 12:30 pm

I would sell them all before a possible rise in long term capital gains tax rates since it's such a huge amount in your case.
(At least I'm not feeling so guilty now about my ~160 shares of Apple now after reading this.)

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Re: Buy, sell or hold Caterpillar?

Post by sco » Tue Sep 06, 2016 7:36 am

Sell the CAT (perhaps not all at once, depending on your tax situation) and buy into your total market or bond fund. You will have less dividend, but you will greatly reduce your risk.

That is roughly a $500,000 position in CAT isn't it? How would you feel if 1/2 that was gone tomorrow? Is this 10% or 50% of your portfolio? The volatility is much more with individual stocks. I'd probably sell as much as practical at the current LT capital gains rate, the 401k shares I would sell immediately regardless.

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Re: Buy, sell or hold Caterpillar?

Post by livesoft » Tue Sep 06, 2016 7:39 am

beammeupscotty wrote:You mean you've been on this board for over 6 years and are finally getting around to thinking about this? If you had sold Caterpillar and bought Vanguard Total Stock Market Index on the day you joined, your $490K of CAT would instead be worth $631K (with a lot less volatility). Hmmmm...
And that's with CAT dividends reinvested, too. ;)
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Re: Buy, sell or hold Caterpillar?

Post by livesoft » Tue Sep 06, 2016 7:43 am

sco wrote:How would you feel if 1/2 that was gone tomorrow? Is this 10% or 50% of your portfolio?
The chart shown earlier in this thread shows that from highwater marks to the low points of the dips that CAT lost about 35% of its value, so the OP has a pretty good idea of how they feel when CAT drops by a huge amount.

I don't think that CAT is an Enron, but there is no reason for former CAT employees to make the same mistake as former Enron employees.
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Re: Buy, sell or hold Caterpillar?

Post by sco » Tue Sep 06, 2016 8:22 am

livesoft wrote:
sco wrote: I don't think that CAT is an Enron, but there is no reason for former CAT employees to make the same mistake as former Enron employees.
Enron folks didn't think anything was wrong either ;) But I get what you are saying..
I hadn't caught that chart earlier...

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Re: Buy, sell or hold Caterpillar?

Post by Valuethinker » Wed Sep 07, 2016 4:10 am

sco wrote:Sell the CAT (perhaps not all at once, depending on your tax situation) and buy into your total market or bond fund. You will have less dividend, but you will greatly reduce your risk.

That is roughly a $500,000 position in CAT isn't it? How would you feel if 1/2 that was gone tomorrow? Is this 10% or 50% of your portfolio? The volatility is much more with individual stocks. I'd probably sell as much as practical at the current LT capital gains rate, the 401k shares I would sell immediately regardless.
This is very good advice.

It is not money until it is in cash. A single stock holding (as I know ruefully) is just a paper number made up on a screen *until* it is sold, and invested in a diversified way.

CAT is a good company, with good products. But it has plenty of competitors, and its core markets (mining, heavy extractive industries) are in a veritable depression. And it could get worse before it gets better.

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Re: Buy, sell or hold Caterpillar?

Post by Valuethinker » Wed Sep 07, 2016 4:12 am

millewk wrote:Caterpillar buy or hold? I worked for the company for 33 years and I still have 6000 shares, 5500 in my trust brokerage acct and 500 in my 401k. It still pays a good dividend which I reinvest. Maybe I'm just getting nervous in my old(er) age but this commodities dip feels different somehow! Your thoughts?
Just sell the 500 now, and stop reinvesting your dividends.

At which point, you need to have a plan for the other 5500. But cut your exposure by that 10% right now.

I would set a target that CAT is no more than 10% of my personal portfolio (but if it's 15% in the short run, that's not going to kill you).

Money off the table. Until you have taken money off the table, you are still playing in the casino.

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