Sunday, January 29, 2012

Wednesday September 28. We say, “Follow the leader.” It’s often good advice in business. There is one company whose very survival depends on forecasting the economy and anticipating the future


Wednesday September 28. We say, “Follow the leader.” It’s often good advice in business. There is one company whose very survival depends on forecasting the economy and anticipating the future - six months, 12 months and 24 months ahead. All companies suffer from business and economic cycles. But those encountered by Caterpillar are severe. Because of their product and industry, their ups and downs are extreme. There were times when Cat might have been seen to be on the ropes. But Cat has survived. In fact, no other company in the Dow Jones 30 Industrials came storming out of the gate the way Caterpillar following the market crashes of 2008. Cat executives had been through many downturns before, and they had anticipated this one, if not in the precise timing, then by having set in place a survival strategy for downturns. So when the crash came, Cat management was prepared. They went directly into their “survival mode” and began to play out their carefully rehearsed response. They had stockpiled cash and prepared detailed actions related to various economic scenarios. As a result, Cat stock’s performance for 2000-2010 increased at a stunning 17.7% annual rate, best in the DJIA. We should look to the leader and consider what they are forecasting, because their survival depends on it. Tried and proven, Caterpillar may offer us some insight into our otherwise uncertain future. Investorguide reports as follows:

“Looking forward, Caterpillar's actions suggest that a recovery may be around the corner. ‘The company has announced that it is restarting its Large Engine Center in Lafayette, a 1.4 million square feet structure which has been closed for the past three years. "We've had quite a comeback, but we're not quite back to the peak," Caterpillar operations manager Timothy Zaspal stated, "We're cautiously optimistic about the future. We're all keeping our eye on economies around the world." In contrast to its previously dour outlook on the Chinese economy, Caterpillar group president Richard Lavin has stated that the company is confident about Chinese growth prospects, despite recent measures to stave off inflation. Lavin stated, "We are optimistic about where our business is going in China over the next five years." Although Chinese orders for its excavators has steadily declined in the past few months, Caterpillar has invested heavily in the expansion of an excavator plant in Xuzhou, which is slated for completion in 2014. Caterpillar claims that when the plant opens, its capacity to build excavators will increase 400% from its 2010 level.”

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