We attended the presentation Jim Chanos, of short-selling hedge fund Kynikos, made to a small group of hedge fund managers back in 2013 regarding his view that Caterpillar (CAT) was his best short idea at that time.

Since then, we have followed Caterpillar casually and have seen that Chanos has been right about a lot of the company’s operational issues – especially the weakening demand enronment.

However, we also have good evidence that Caterpillar is a well-run company, so are not as excited about this bearish position as he evidently is/was. CAT is a complex company whose revenues are driven by several different commodity markets as well as by government policy. As such, coming to a rational view about revenue drivers is difficult. We have looked at evidence of “commodity supercycles” and teased out what Caterpillar’s business might have looked like if not for the huge BRIC demand in mid-aughts.

Much more detail to come in a ChartBook soon, but here is our initial valuation and commentary.

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