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Berko: Sell H&E Equipment Services, buy CAT

By Malcolm Berko

Published: September 22, 2018, 6:05am

Mr. Berko: I’m an officer at Naval Air Station Pensacola, where a group of us reads and discusses your column each week. Early this year, you wrote an interesting column about H&E Equipment Services. When I crunched the data in February, it looked strong on my technical charts. I bought 300 shares at $36 and in a short time frame, it ran to $45. I didn’t take my fast profit, and it’s now down to about $34, so I have a small loss. I bought H&E because you said it would participate in Donald Trump’s plans to rebuild our infrastructure. What are your thoughts now? Should I buy more H&E shares, or should I sell?

— HW, Pensacola, Fla.

Dear HW: I’ve always wondered how much deeper the oceans would be if we didn’t have any sponges. As a longterm investment — three to five years — H&E Equipment Services (HEES-$34.66) appears to be a good candidate. But as a short-term investment, HEES kinda sphinx.

I don’t know boo, beans or bupkis about charting. I always believed those squiggles, squirms and intersecting lines plotted carefully on graph paper were some kind of hocus-pocus necromancy involving the black arts and bone casting. So I asked a technical analyst who is a member of Mensa and assiduously lives by a multiplex of intersecting graphs and inverted diagrams for help. She dusted off her old Ouija board inlaid with ivory and gold and carved from snakewood. The following is her email to me:

“Beware, the technical condition of HEES is weak. The underlying indicators are negative, and a reversal of the existing trend seems neutral at this time. The stock has underperformed the market when compared with the S&P 500 over the past 50 trading days. The MACD-LT is confirming that the intermediate trend is bearish. Over the past 50 trading sessions, there has been more volume on the downside than volume on up days, indicating that HEES is under distribution, which is a bearish condition. The stock is trading below a falling 50-day moving average, which confirms the weak technical condition of HEES. The stock is trading below its 200-day moving average, which is also bearish.”

In case you’re wondering, MACD stands for “moving average convergence/divergence.” And LT stands for Larsen & Toubro, a free online platform for market analysis. This is a “sell” recommendation, so you probably should take your short-term loss on HEES and be done with it.

Then use your proceeds, plus some extra cash, and buy Caterpillar (CAT-$146), which is down from its high of $173 in February. CAT (“The Big Yellow Machine”) is the world’s largest manufacturer of earthmoving equipment, mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. So if God put a mountain or a lake in your way, call CAT.

For 90 years, CAT’s equipment has been making sustainable world progress possible and driving positive changes on every continent. This solid rock and roll company, with 580 million shares outstanding, turned a profit of $3.44 a share in 2016 on $38 billion in revenues while enjoying a net profit margin of 5.2 percent. In 2017, management got closer to heaven, posting $6.88 in per-share earnings with $45 billion in revenues and a 70 percent increase in its net profit margin. This year, CAT’s management must have found the stairway to heaven — because CAT’s management expects to report earnings of $10.75 a share on revenues of $52 billion, made possible by a net profit margin of 12.3 percent. Wow and a big double wow, those are mighty impressive numbers.

CAT, whose $3.44 dividend has been raised for 25 consecutive years, yields 2.3 percent and could be a $200 stock in a couple of years.

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