Cramer: Expect Institutional Buying in Caterpillar, Despite the Investigation

 | Mar 13, 2017 | 11:37 AM EDT
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Rarely, if ever, have I had so much blowback on a piece that I have done on Mad Money than my pro-and- con segment on investing in Caterpillar's stock after the big federal government raid of their shop.

A lot of the concern stems from the huge move that CAT has had from the sixties, saying that it isn't worth it to mess with a stock of a company that's moved up so mightily anyway. Who needs this additional headache?

But most of it centers on the notion that you simply can't own any stock where there are accounting irregularities even if there's a compelling story to own it.

My thesis had been that Caterpillar (CAT) has not been entirely forthcoming about the investigation. Their central defense, outlined by the CEO, Jim Umpleby, is pretty simple: The company is fully cooperating with the government.

The issue I have with that, having been trained as a lawyer and having many friends on both the defense and the prosecution side of things, is that Caterpillar may think it is cooperating -- but obviously the government doesn't think so or it wouldn't have raided the companies' offices.

The hard part about this is that, as opaque as Caterpillar has been, the government's been worse. First, we don't even know what part of the government is pursuing Caterpillar. Is it the IRS? If so, then keep in mind that when the IRS takes you to court, you are guilty until proven innocent -- something most people do not realize. Therefore it's a pretty good chance you are going to lose. If it is the Justice department, then we know that it no longer wants to put companies out of business. Ever since the government sued Arthur Andersen, the gigantic accounting firm, in the wake of Enron, effectively closing the company, it's been loath to enact what's known as the "death penalty."

Now, this weekend Preet Bharara, the aggressive U.S. Attorney for the Southern District of New York, was fired after believing he wasn't supposed to be because of a handshake deal he had made with then-President-elect Trump. The story then had been that while Bharara knew that all U.S. attorneys are asked to resign in a change of the president, he thought he would be excluded from the order that demanded the resignation of 46 holdovers.

That was wrong.

But I bring him up because he would never have done to CAT what this branch of the Feds are doing, which is to let them twist slowly in the breeze without revealing the charges simultaneously with the raid, because the raid is a per se admission that CAT is a wrongdoer.

But to pull it all back to the investment side, let's say CAT owes a ton of money to the IRS, say $4 billion. As large as that is, and that's twice the rumored amount, it wouldn't dent the company's coffers and the large institutional buyers of the stock would use any weakness to buy, betting that if CAT's guilty, it won't impact future orders or earnings.

I think that's a reasonable thesis, which is why even as my historic view has been
"accounting irregularities equals sell" -- a posture I came up with, that you can read about in the book "Real Money," after being betrayed too often -- the institutions will no doubt ignore the imbroglio and buy the stock. And I wanted people to know why, so if they wanted to get on board, they could.

I agree there are better companies with cyclical exposure, including United Technologies (UTX) , where CEO Greg Hayes just told us things are getting much better than even three months ago, especially with elevators and heating air conditioning and ventilation. Suffice it to say, though, if you think China's coming back, mineral demand is returning and construction could soon boom, then the weakness caused by this investigation is giving you a chance to get in, not a reason to get out.

So, debate the piece all you want -- and boy, was it every debated on Twitter -- that's the entire thrust of the "buy Caterpillar" piece. It wasn't really the "buy" story, just an explanation of why you should expect the big institutions to buy: because this is THE stock they want for the big cyclical turn.

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