For Ask Matt readers:Caterpillar Inc. (CAT) — Dangerous Rating

Caterpillar Inc. (CAT) gets our Dangerous Rating. This means CAT’s quality-of-earnings are not attractive and the stock’s valuation is very expensive. For example, the valuation of the current stock price ($112.16) implies the company will grow its profits at 16% compounded annually for  20 years. The takeaway: there are better stocks to choose from. See details in our free report.

To learn more about New Constructs research and the unique insights and diligence we offer, see our latest Red Flag research: “Hidden One-Time Items Distort Earnings”. For example, since 2005, Ford has buried at least $1.7 billion annually of one-time charges within operating line items on its income statement. In 2008 alone, the company buried over $8.5 billion of one-time charges in line items like “Cost of sales”. These charges cause Ford’s reported earnings to understate, meaningfully, F’s normal operating profitability and cause F’s stock to plunge to multi-year lows. In the following years, once investors realized the normal profitability of the business was much better than indicated by 2008 GAAP earnings, the stock soared back to over $15 per share. Our case study on Ford shows how to find and rectify hidden items for Ford is in our free report on Hidden Items.

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