Brokerage J.P. Morgan downgraded Caterpillar Inc.'s CAT stock to "underweight" on Monday, posing concerns over CAT's direct exposure to oil and gas. Crude oil prices hit the underside of $50-a-barrel in trading Monday while CAT fell 1.5% in premarket trading, spurring concerns of an oil and gas meltdown for high yield bonds, stocks and ETFs.
Regulatory filings show that Caterpillar's exposure to oil and gas is about $6.5 billion, which represents around 12% of the company's total revenue.
In discussing banks, Wall Street Daily warned that high percentage exposures to energy lending, such as BOK Financial's 18.4%, Hancock Holding Company's 12.2% and Cullen/Frost Bankers's 11.7% could produce a ripple effect of problems if price drops continue to plague oil and gas. Essentially, the greater the percentage of energy (oil and gas) exposure, the greater effect financial problems in the fuel industry will have over the financial institution or product.
JP Morgan analysts wrote in the firm's decision to downgrade Caterpillar that "its indirect exposure may be greater than anticipated" because "US construction equipment demand has been strongly correlated with the expansion of fracking and, as a result, we would expect to see a slowdown in equipment demand in 2015."
The firm cited additional Caterpillar exposure to Canadian Oil Sands (COS.TO) and the Middle East in its note. Canadian Oil Sands is a high-yield bond that very recently cut its dividend by nearly 50%.
While the S&P 500 index itself has fallen 0.03% over the last three months, Caterpillar shares have fallen 5.6% over this same period.
If your broker or advisor recommended you invested in Caterpillar or any company's stock or high yield bond with either direct or indirect exposure to oil and gas, such as through energy lending and equipment rental as was the case with Caterpillar, and the product's performance has proven harmful to your investments or financial interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.
News: Caterpillar shares down 1.5%, J.P. Morgan downgrades to underweight (Market Watch)