Face-Off on Stocks: Alcoa, Caterpillar, United Technologies

It's no secret growth in China and other emerging markets is going to outpace expansion in developed markets like the U.S., Japan and Europe for years to come. Fortunately, U.S. investors looking for exposure to such growth needn't venture very far. Alcoa (AA), Caterpillar (CAT) and United Technologies (UTX) afford the safety and security of the bluest of blue-chip stocks (they're all in the Dow), while also being plays on a China-led global recovery.

Shareholders in Alcoa, the aluminum giant, would just as soon put 2010 behind them. The stock is off more than 11% so far this year while the broader S&P 500 ($INX) is up about 12%. Shares look cheap at these levels, seeing as Alcoa currently offers deep discounts to its own five-year average and the broader market on a forward earnings basis. On the other hand, aluminum prices can be very fickle, especially every time China moves to cool down its red-hot economy.

Caterpillar, the largest global manufacturer of heavy construction equipment, is up a whopping 63% for the year to date. As commodity prices rise, so too does demand for the equipment needed to build mining and energy projects. To that end, Cat's recently acquired mining equipment maker Bucyrus in a $9 billion deal. If you're bullish on higher commodity prices, Cat looks intriguing. However, the stock's torrid 2010 has its relative valuation looking a bit stretched by some measures -- and there is the very real concern Cat may have overpaid for Bucyrus.

United Technologies, a conglomerate including Otis elevators, Carrier heating and cooling, Pratt & Whitney aircraft engines and Sikorsky helicopters, has been getting along on restructuring savings and overseas growth. The stock is up nearly 14% this year, which is about a couple percentage points better than the S&P 500. Domestic demand in commercial and industrial infrastructure remains sluggish, but sales to emerging markets and the jet engine business are encouraging. Shares are at a discount to the S&P 500 by forward earnings, but with 41% of UTX's sales coming from the U.S., slow growth at home could cause profit to come up short.

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ffflip4it

Have you visited China? Especially, Shanghai? #1 City in the world. If anyone is genuinely interested to see why a nation does well, go there and learn quickly why the years ahead will play well for China and not so well for the U.S. The mentioned mega-corporations banking on international sales of U.S made product, will starve awaiting purchase orders! China will be making their own! Cheaper!

Inch by inch, productivity and especially quality assurance and control in China has matured. No matter where one looks, the quality of life improves when only a few years ago, poverty ruled. It's all about caring, pure and simple. Something having grown in short supply, domestically.

December 15 2010 at 12:49 PM Report abuse rate up rate down Reply
2 replies to ffflip4it's comment
Gumby

If China makes everything for themselves by themselves, they will be choking in smogvilles all over China! Get real! China has to import like everyone else. Spread the smog out!!

December 15 2010 at 1:55 PM Report abuse rate up rate down Reply
Gumby

America outsourced jobs simply because we are using too much energy with lone commuters driving to work and back home.. This may change a bit as we are starting to install clean alternate "extra" energy here in America to help offset some of our dependence on oil and coal . Fossil fuel consumption will level off here as extra clean alternate energy sources will pick up the power for future economical growth. We will be building powerplants in Africa to power the future growth in tourism and lodging industries there for tourists who are dying to see the safari wildlife and what is left of them there.

December 15 2010 at 2:00 PM Report abuse rate up rate down Reply
Gumby

It is so weird to see so many nations being able to set up too much smelting capacity yet they dont know what to do with the aluminium being churned out of the smelters.. They are screaming at us to start recycling aluminium because it is too energy intensive to make new aluminium,yet they are building more of those smelters.. Who is taking advantage of that? Workers dont care about aluminium prices as long as they get paid to make them. Where is the capitalists?

December 15 2010 at 11:07 AM Report abuse rate up rate down Reply