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 it very expensive. For exam­ple,  the val­u­a­tion of the cur­rent stock price ($104.13) implies the com­pany will grow its prof­its at 16% com­pounded annu­ally for over 15 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.