Q. What is the outlook for my shares of Caterpillar Inc.? — P.V., via the Internet

A. The world's largest manufacturer of earthmoving equipment must plough through weakness in US construction and the decline in demand for engines that it puts in trucks.

But overseas prospects remain strong.

Chairman and chief executive Jim Owens considers emerging-market economies to be "in good shape, with relatively low inflation and interest rates and strong balance sheets".

As North American sales fell to 44 percent of its total revenue last year, from 53 percent the year before, the firm is investing $1 billion in emerging markets from 2008-10. In addition, its exports rose 20 percent in 2007.

The company is adding manufacturing capacity in China and India. Its stake in the Japanese joint venture Shin Caterpillar Mitsubishi has been boosted to two-thirds from 50 percent. It also will be making hydraulic excavators in Russia.

Owens affirmed his 2008 forecast of five percent to 15 percent growth in earnings per share, propelled by overseas strength in infrastructure and oil industries. He has said he believes a 2008 US recession will be short-lived.

Record sales in recent years have come from the revitalised mining and energy industries. That, however, makes it vulnerable to a sustained drop in commodity prices.

Shares of Caterpillar (CAT) are up eight percent this year following last year's 18-percent increase. The company has a solid balance sheet, plenty of cash on hand and a high credit rating.

The product line-up is diversified in earthmoving, construction and material-handling machinery and engines. Caterpillar also has strong capital management, advanced logistics for parts delivery and an impressive research and development division. It plans to spend $2.3 billion in capital expenditures this year, part of it to research products to meet global emissions standards.

Consensus rating on shares of Caterpillar is "buy", according to Thomson Financial, consisting of eight "strong buys", three "buys", five "holds" and two "underperforms".

Longtime Caterpillar executive Owens became top boss in 2004.

Owens hasn't decided the future of Caterpillar's highway diesel-engine business, which is facing stiff competition from truck manufacturers that are increasingly making their own engines rather than turning to outside suppliers. Whatever is decided, he maintains it will have no impact on earnings per share between now and 2010.

Earnings are expected to increase 10 percent this year and 13 percent next year, according to Thomson. The five-year annualised growth rate is forecast as 12 percent.

Q. Do you think I should hold on to my shares of Fidelity Capital Appreciation Fund, which have been down? — R.M., via the Internet

A. The track record hasn't been stellar since J. Fergus Shiel took charge in October 2005, due in part to a large stake in airline stocks that has hurt returns. He still sees potential in airline stocks because of shareholder-friendly moves and increased cash positions.

Shiel's heavy bet on industrial stocks should pay off thanks to the weaker US dollar.

The $7.6 billion Fidelity Capital Appreciation Fund (FDCAX) is down six percent over the past 12 months to rank in the bottom 10 percent of large growth funds. Its three-year annualised return of seven percent places it just above the midpoint of its peers.

"This is one of Fidelity's go-anywhere, do-anything type of funds, and I have a 'buy' recommendation on it," said Jack Bowers, editor of Fidelity Monitor (www.fidelitymonitor.com) in Rocklin, California. "The general theme, with a few exceptions, is companies that have been beaten up but are turning things around and finding new ways to increase revenues."

Shiel succeeded Harry Lange, the successful manager who left to run Fidelity's Magellan Fund. Shiel, an experienced manager who ran Fidelity Independence Fund from 1996 through 2003, is more eclectic and somewhat less growth-oriented than Lange. He is also manager of Fidelity Advisor Dynamic Capital Appreciation Fund (FRGTX).

Value, growth, foreign and domestic stocks of many different sizes populate his portfolio. Earnings growth and turnarounds are important, but he also will invest in some pricier stocks if he sees positive prospects.

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