A helluva long way to go for MMM and CAT to get back to even

Numbers don't lie. And it's gonna take a lot of huge numbers to make stocks get back to their levels from late 2007.

You have any idea how much Caterpillar and MMM, for example, are going to have to grow their toplines in order to get them back close to what they were just four quarters ago?

Caterpillar was generating $13-$14 billion per quarter in sales in 2008. Last quarter, that dropped to about $9 billion. Yup, sales, which were supposedly going to reflect the great growth in our global economies til the end of time, have dropped by a third in the blink of an eye. What does that say about our global economies?

And lest you think I'm picking on Cat and its tractors, let's take a look at 3M, maker of post-its and the Nexcare Earloop Mask and see how it's faring in this post-bailout economy. 3M's revenues were peaked up last year at nearly $7 billion a quarter. Last quarter, 3M cranked out $5 billion in sales for a 30% drop.

Ouch.

So, let's think this through. For Caterpillar's sales to get back to where they were when the DJIA was at 12k-14k, Caterpillar's gonna have to see revenue increase 50%. Yeah, sales will have to improve by a full half in order for Caterpillar's fundamentals to simply get back to where they were at the top. Same thing for 3M's sales -- a 30% drop means that they'll have to grow 50% to get back to even.

These companies continue to show some profits even in the face of these Depression-like revenue drops because they've cut tens of thousands good American jobs and have frozen pay increases and many benefits for the people they've kept employed. Earnings growth won't come from cuts though; sustainable earnings growth only comes from sales growth.

And since earnings ultimately drive stock prices, now let's apply this logic to the Cat's and MMM's stock prices. The market awards companies a "multiple" on top of their earnings. Classic cyclical stocks like Cat and MMM usually trade at 8-12x earnings, which means that if they companies don't grow earnings at all and the company were to pay out every dime of their earnings, that it'd take 8-12 years for you to get paid back.

If you'll go with the bulls who cover these stocks and assume that the idiot analysts on Wall Street who didn't see these 30% y/y revenue drops coming last year are right about their earnings estimates for these two stocks next year, then you'll see how they make my bearish point for me anyway.

Cat's forward P/E is about 30 and MMM's forward P/E is in the high teens. 30 and the high teens is much more than the 8-12x earnings that I'd be consider just fair value.

Maybe those earnings estimates are too low? By how much? Can Caterpillar, MMM and the rest of the world's big corporations find enough buyers around the world to get their revenues up another 50% from these levels to their peaks from last year? And if so, how quickly could that possibly happen? 10% growth per year for the topline is way too much to hope for for these two cyclical companies, as I'm sure even the most optimistic bull would tell you. And even 10% topline growth would mean it'd take four years or so (16 quarters or so) to get back to square one. And assuming they did grow 10% a year for the next four years, would the market reward these companies with a 8-12x multiple on their peak earnings yet again?

I hate being bearish. I'd much rather look at the positives than the negatives in the market place out there. But here's yet another reason why I'm so bearish with the DJIA now 7% above my 6000 to 8500 range that I've been saying is where we'll be since the bailouts started last summer when the DJIA was above 12,000.

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