Caterpillar: Rolling On
Strong economic growth and pricing power help fuel impressive performance at this heavy-equipment giant.
As such tech stocks as Dell and Intel roll over, old-economy stalwarts like Caterpillar continue to roll. The Peoria, Ill., heavy-equipment powerhouse on Friday announced another blow-out quarter: Earnings jumped 41%, to $1.52 per share, from the same period a year ago, and quarterly sales surged 13%, topping $10 billion for the first time.
Caterpillar is benefiting from strong global economic growth of about 5%. The company, a component of the Dow Jones industrial average, generates half of its sales outside North America. Robust global construction and infrastructure spending boosts demand for those yellow bulldozers, while high prices for commodities and energy stimulate orders for Caterpillar's mammoth mining trucks and oil-platform power generators. Residential construction in the U.S. is weakening, but demand for equipment used in commercial construction is more than compensating.
Unlike many U.S. manufacturers, Caterpillar enjoys pricing power: This is not General Motors or Ford competing against Toyota and Honda. Caterpillar is a global leader in many of its markets, such as earthmoving and mining trucks. Caterpillar Chairman and CEO Jim Owens noted that price increases accounted for more than one-third of the quarterly increase in revenues. Moreover, a weakening dollar should help the company compete against overseas rivals such as Japan's Komatsu.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
In the past, Caterpillar (symbol CAT) has been a highly cyclical company whose fortunes have been closely tied to growth in the U.S. economy, which will almost certainly start to cool in the second half of this year. David Raso, machinery analyst at Citigroup, thinks Caterpillar's strong balance sheet, increased exposure to overseas markets such as China and Latin America and more-diversified product line (power-generation equipment and truck engines are recent growth areas) can help reduce cyclical volatility.
The stock fell 73 cents on Friday, to $68.35. At that price, it sells for 12 times Raso's 2006 earnings forecast of $5.70 a share and ten times his 2007 projection of $6.57. Raso, who recommends buying the stock, has a price target of $93.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
Andrew Tanzer is an editorial consultant and investment writer. After working as a journalist for 25 years at magazines that included Forbes and Kiplinger’s Personal Finance, he served as a senior research analyst and investment writer at a leading New York-based financial advisor. Andrew currently writes for several large hedge and mutual funds, private wealth advisors, and a major bank. He earned a BA in East Asian Studies from Wesleyan University, an MS in Journalism from the Columbia Graduate School of Journalism, and holds both CFA and CFP® designations.
-
The Original Property Tax Hack: Avoiding The ‘Window Tax’Property Taxes Here’s how homeowners can challenge their home assessment and potentially reduce their property taxes — with a little lesson from history.
-
Is Mint Mobile's Home Internet a Game-Changer or Just Another Option?Mint Mobile recently unveiled its new home internet service. We break down how it works so you can determine if it's a great value for your needs.
-
What the Rich Know About Investing That You Don'tPeople like Warren Buffett become people like Warren Buffett by following basic rules and being disciplined. Here's how to accumulate real wealth.
-
Stocks Swing in Volatile Session: Stock Market TodayThe main indexes fell sharply in early trading on rising China tensions, but rebounded thanks to encouraging bank earnings.
-
Stock Market Winners and Losers of the 'Big, Beautiful' BillDefense, manufacturing and tech should prosper, while health care and green energy stocks face hurdles.
-
Dow Adds 238 Points as UNH, CAT Pop: Stock Market TodayThe lack of a September jobs report didn't seem to worry market participants, with the data delayed due to the ongoing government shutdown.
-
If You'd Put $1,000 Into Bank of America Stock 20 Years Ago, Here's What You'd Have TodayBank of America stock has been a massive buy-and-hold bust.
-

If You'd Put $1,000 Into Oracle Stock 20 Years Ago, Here's What You'd Have TodayORCL Oracle stock has been an outstanding buy-and-hold bet for decades.
-
How to Invest for Rising Data Integrity RiskAmid a broad assault on venerable institutions, President Trump has targeted agencies responsible for data critical to markets. How should investors respond?
-
If You'd Put $1,000 Into Sherwin-Williams Stock 20 Years Ago, Here's What You'd Have TodaySherwin-Williams stock has clobbered the broader market by a wide margin for a long time.