The 2016 Bullish and Bearish Case for Caterpillar and DuPont

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Caterpillar Inc. (NYSE: CAT) and E.I. du Pont de Nemours and Co. (NYSE: DD) were two of the Dow stocks that came out on the negative side for 2015. Each company faced its share of challenges in 2015, and for the most part the outlook is not exactly clear for Caterpillar or DuPont going into 2016.

24/7 Wall St. wanted to see what the strategists and analysts on Wall Street expect for the stock market in 2016. It turns out the bull market was interrupted in 2015, as the Dow Jones Industrial Average closed out the year at 17,425.03 for a change of -2.2% for the year. That may be hardly a reason to call a bear market ahead, but it follows six straight years of gains.

The selling pressure in the first week of 2016 has been strong enough that it has many investors on edge. Both companies face pressure from slowing demand in major growth markets in the world. Both also are suffering from the strong dollar.

Caterpillar

While the index performance of the Dow does not account for individual stock dividends, Caterpillar ended 2015 at $67.96, for a loss of 23%, including its dividend adjustments. For the year ahead, the consensus analyst price target from Thomson Reuters is $68.19. If the analysts are correct, the expected total return for Caterpillar would be 4.9%, if you include its dividend yield of 4.53%.

Because 2016 has gotten off to a very bumpy start, Caterpillar shares were trading at $63.77 just a few days into the new year.


Caterpillar has not always been very high on the Dow totem pole for dividends. The company’s problem is that every commodity market remains under pressure. Also, every growth market is running at slower pace or contraction, and that strong dollar is hurting its ability to export at a time when fewer nations and companies want heavy gear like this. Maybe the infrastructure pact in the United States will smooth things out for Caterpillar.

China, Brazil and other growth markets have little growth at this point. Those monthly sales figures have looked so bad in 2015 that a global turnaround just seems quite a ways off. Caterpillar was once projected to rise to well over $100 per share, but those days are now a distant memory. Earnings per share in 2016 are expected to be down by almost half from 2014 — and what if things get even worse?