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Monday, October 5, 2009

Afternoon Review: BTU, CAT, GD

S&P 500: +15.25 (+1.49%)

Bargain hunters scooped up stocks following two weekly losses and an encouraging reading in the ISM Non-Manufacturing Index signaled a return to growth. Also boosting sentiment was an upgrade of bank stocks by Goldman Sachs. The day was otherwise light in news as the investment community gears up for 3Q earnings season.


Peabody Energy (BTU) climbed 4.09% in response to a story in this week’s edition of Barron’s, which suggests the stock could double as coal demand increases. The story makes particular note of the company’s Australian coal, which has 30% profit margins, and argues the market has not correctly valued Peabody’s Asian and American coal. Peabody also stands to benefit from rising Indian and Chinese coal demand.

Caterpillar (CAT) shares jumped 3.93% as the company announced plans to increase machinery prices as much as 2%, the smallest increase since at least 2006, citing “current industry factors and current and expected general economic conditions.” Caterpillar shares also benefited from Morgan Stanley analyst Robert Wertheimer raising his target price on the world’s largest maker of construction equipment citing a “slightly stronger economy.”

General Dynamics (GD) rose 2.68% as Morgan Stanley analyst Heidi Wood raised her rating on the company citing a recovery for Gulfstream business jets. Several weeks ago, the Chinese government announced changes that open up its airspace for business jets. Wood notes the changes effectively unlock the Chinese business jet market and could drive “substantial incremental demand.”


Quick Hits

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Peter J. Lazaroff, Investment Analyst

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