Caterpillar is going higher

Caterpillar Inc., the world leader in manufacturing, is traded on NYSE under the symbol of CAT and in my opinion currently it is a BUY.

The company was founded as Caterpillar Tractor Co. in 1925 and was renamed as Caterpillar, Inc. in 1986. Caterpillar Inc. primarily designs, manufactures, and sells machines and engines for various applications such as marine, petroleum, construction, industrial and agricultural.

Fundamentally, Caterpillar Inc. is very sound. In FY 2006 its sales were up by 14% and operating profit soared by 30%, compared to FY 2005. Caterpillar Inc. has consistently delivered a good return on equity (ROE), which means that the Caterpillar management is very efficient in the way it conducts its business. Its ROE has consistently exceeded the industrial average and the S&P 500 average. For Q4 2006, Caterpillar's ROE was approximately 51% while the industry’s ROE was 23% and the S&P 500 ROE was 16%. Also, Caterpillar is growing faster than the rest of the industry. Compared to Q4 2005, in Q4 2006 its sales were up by 13% compared to the industrial average of 10%. Also, I believe CAT is currently undervalued with a PE ratio of 13, which is less than the industrial average of 17. Furthermore, on 02/15/2007 Caterpillar Inc. announced a stock buyback plan worth 7.5 billion USD. This is very good news for investors, because it means lower number of total shares outstanding and thus greater earnings per share.

Other than strong fundamentals, there is one more thing I like about CAT. Caterpillar’s business has a global presence. Other than United States and Canada, Caterpillar has penetrated various developing markets such as Africa, Middle East, Brazil, China, India and Indonesia. Though the 2007 outlook in North America (US and Canada) is not as bright as 2006 with sales expected to decrease by 8%, overall the year of 2007 looks good for Caterpillar Inc., because much of the increase in sales will come from outside United States. Also, Caterpillar's exposure to the US housing sector has scared away many investors in 2006, but the housing market is expected to get better in the second half of 2007 and this will provide an additional lift to the Caterpillar's business.

Another good thing going for Caterpillar Inc. is the strong commodity market for metals, oil, natural gas and agricultural products. Jim Rogers, the world's most successful commodity investor believes that currently the supply and demand for commodities is very unbalanced, with the demand exceeding the supply. Thus, we are in the middle of a commodity bull market and one way to benefit from this is by investing in companies aiding the commodity business such as Caterpillar Inc.

Bottom line, Caterpillar Inc. is the best in the breed and undervalued. It should benefit from the strong commodity market and its global presence. In my opinion, CAT's a BUY.

DJ Orthopedics playing the trend

DJ Orthopedics Inc., a medical device company is traded on NYSE under the symbol of DJO and in my opinion currently it is a BUY.

DJ Orthopedics Inc. specializes in non-operative orthopedic, spine and vascular products in the United States and in more than 60 other countries worldwide. DJO offers approximately 600 rehabilitation products that include rigid knee braces, soft goods and pain management products that are used to prevent injury, treat chronic conditions and aid in post-surgery/post-injury recovery.

Fundamentally, DJ Orthopedic Inc. has had a good growth story in 2006. In the quarter ending September 30, 2006, DJO Inc. reported a 56.9% increase in net revenues and 48.7% increase in the gross profit compared to Q3 2005. The company is also very committed in introducing new products in the market - DJO introduced 16 new products in the market in the first nine months of 2006.

I like DJO not only because of its dominance in the non-operative orthopedic segment of the healthcare industry, but also because of the current demographic trend in its favor. With the baby boomers reaching sixties and expecting to live longer, I see a growing demand for its product line lasting many decades.

One thing favoring DJ Orthopedics is its greater insulation to seasonal revenue patterns compared to its competitors who are in the business of operative surgical products. People suffering from orthopedic injuries are usually less inclined to go through a corrective surgery right away, and tend to opt for non-operative rehabilitation products as an intermediate measure. This is especially true during certain times of the year, e.g. the holiday season, when these non-operative rehabilitation products become all the more prevalent due to the desire to postpone the inconvenience of a surgery. In addition, more and more people indulging in outdoor activities (such as skiing, football, etc.) are also now routinely and proactively using injury preventing knee braces. These factors make the entire range of DJO products prevalent year round.

One more thing worth mentioning is the possibility of a short squeeze. Currently, many traders are betting against DJO, thus shorting approximately 7.4% of the total number of shares available for trading. The short ratio for DJO as of January 9th, 2007 was 12.1, which means that it will take approximately 12 days for the shorts to cover their sales. In my opinion any positive indication in favor of DJ Orthopedics will pressure shorts and if they all start covering their calls at the same time, we will witness a short-squeeze.

Bottom line, current demographic trend and growing market presence make DJO lucrative. So investors BUY DJO and play the trend, in my opinion it will make you greener.

NYSE Group for risk-lovers

NYSE Group Inc., the biggest stock exchange in the world is traded on NYSE under the symbol of NYX. In my opinion currently it is a BUY, but only for risk-takers.

NYSE Group operates two securities exchanges, the New York Stock Exchange (the "NYSE") and NYSE Arca. As of December 31, 2006, the NYSE and NYSE Arca listed approximately 2,764 world-class issuers. NYSE Group listed 206 new issuers in 2006, including 28 transfers from other markets (compared to 16 in 2005) and 29 non-US companies (compared to 19 in 2005).

On February 2, 2007, NYSE Group, Inc. announced its 2006 annual financial results. In the fourth quarter of 2006, NYSE Group reported profit after reporting a loss in the year ago quarter. It posted 55% increase in revenue in the fourth quarter of 2006 compared to the fourth quarter of 2005. Its earnings per share (excluding non-recurrent items) were 45 cents, just missing the analysts’ estimates by 01 cent. Though the NYSE Group saw tremendous growth in revenue and profit in 2006, its expenses were higher than expected due to increased marketing costs. The non-recurrent expenses mainly included merger costs and restructuring costs because of workforce reduction.

I personally like the Big Board led by John Thain, because it is all about growth and expansion. However, I will recommend it only to risk-takers. As part of its global growth strategy, NYSE Group is all set to merge with Euronext N.V., a pan-European, Paris-based stock exchange with subsidiaries in Belgium, France, Netherlands, Portugal and the United Kingdom. On January 10, 2007, NYSE Group announced an agreement to acquire a 5% equity position in the Mumbai-based National Stock Exchange of India Limited (NSE). On January 31, 2007, NYSE Group formed a strategic alliance with the Tokyo Stock Exchange hoping for a stronger tie-up in the future. Also, John Thain, the CEO of NYSE Group Inc., mentioned that a link up with a Chinese exchange is now on his mind.

In addition to its global growth, NYSE Group has a sound cost-cutting strategy in place. The company is cutting its workforce, replacing people with faster and cheaper machines and closing its trading floors. The exchange is in the process of implementing an electronic trading platform, the "Hybrid Market". On January 24, 2007 NYSE Group announced the completion of Hybrid Phase III and expects to conclude Hybrid phase IV by March 5, 2007. This move has resulted in improved efficiencies and reduced expenses allowing the Big Board to shut down some of its trading floors. NYSE Group's total employee headcount was 2578 as of December 31, 2006, compared to 3296 as of December 31, 2005 (a reduction of 718 positions).

I believe that investing in NYSE Group Inc. can make you very green, but it is risky for two reasons. Firstly, the NYSE Group is competing with NASDAQ Stock Market Inc. (NDAQ). NASDAQ has lower listing fees and this will put pressure on NYSE Group's pricing controls. Secondly, the NYSE Group is growing too fast and its failure to integrate its mergers and acquisitions smoothly can damage the stock. The NYSE Group has bright growth prospects, but its inability to increase its earnings per share in the future quarters can affect the stock price adversely.

Bottom line, NYSE Group's main objective is to make money and it is expanding at a high pace, but I think it is not for faint hearts. So, investors BUY NYX but do not make it a part of your risk-averse portfolio.