Hot stocks: Caterpillar

by | 25 Jan, 2018

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A CAT Hydraulic Excavator in action

Caterpillar (#cat) stock has been the talk of the town this week after the company revealed stellar earnings for Q4 2017 yesterday, in the latest sign that rising domestic demand and global economic growth signals good things for U.S. manufacturing in the year ahead. 

The U.S. based heavy duty construction equipment maker saw its shares rise more than 3 per cent in premarket trading, after posting a number of improving economic indicators.

Sales and revenues in Q4 2017 stood at $12.9 billion compared to $9.6 billion for Q4 2016 representing a 35 per cent gain, while adjusted profit per share was up to $2.16 for Q4 2017 vs $0.83 for the previous year.

In a statement, the company said: “Caterpillar is beginning 2018 with strong sales momentum resulting from strong order rates, lean dealer inventories and an increasing backlog. Additionally, there are positive economic indicators across most of the world and in many of the company’s end markets.”

To top it off, the firm updated its earnings guidance for the year ahead. The company expects 2018 profit per share in a range of $7.75 to $8.75. Excluding restructuring costs of about $400 million, adjusted profit per share is expected in a range of $8.25 to $9.25.

CEO Jim Umpleby said: “We are in the early stages of implementing our strategy for profitable growth. In 2018, we expect to make additional investments in the expanded offerings and services important for Caterpillar’s long-term success.”

Umpleby added: “After four challenging years, many key markets improved in 2017, and our global team delivered strong results.”

Interestingly, the performance of #cat over the past year mirrored better performances for emerging market economies, many of whom are continuing to modernise their infrastructure (and thus need quality construction equipment). The chart below shows this trend, by comparing Caterpillar stock against the iShares MSCI Emerging Markets UCITS ETF over 2017/18.

The upbeat results for Caterpillar reflect changing global circumstances. In 2016, low energy prices sunk demand for Caterpillar’s oil and gas mining equipment, while weak growth in emerging and commodities markets hit sales in the firms transportation and resource segments. However now the skies have cleared – commodity prices are rising again, particularly oil due to actions taken by OPEC, while metals prices surge off a weaker Dollar.

As the global economic expansion continues, demand is likely to grow further. Invstrs should be keeping an eye on this stock, not only because it may represent a worthwhile investment, but also because it acts as a bellweather for the broader economy.

Crucially, the company has excelled despite the lack of an infrastructure package from the Trump administration thus far. While it is possible that this expectation of a major package has already been priced into the stock, it’s also possible it hasn’t, because no official plans which show even the proposed scale of the infrastructure plan have been released to the public, if they even exist at all outside of Trumps head.

If the global economic expansion remains on track, Caterpillar may have room left to run for 2018 and further.

Related: What are the biggest risks for investors in 2018? Invstr CEO Kerim Derhalli gives his take

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As emerging markets grow, so does their demand for construction equipment. #Cat is benefitting from the global economic expansion.

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Invstr is a technology platform, not a registered broker-dealer or investment adviser. Invstr does not offer its own recommendations of any security or provide its own research to any user regarding any security transaction or order.
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ALL RIGHTS RESERVED © INVSTR LTD. 2018

Risk Disclosure:
Invstr is a technology platform, not a registered broker-dealer or investment adviser. Invstr does not offer its own recommendations of any security or provide its own research to any user regarding any security transaction or order.
Please note, investing involves risk and investments may lose value. Past performance does not guarantee future results.
Brokerage services are provided by the following:
US-traded securities, including fractional trading, are provided to Invstr users by DriveWealth LLC, a regulated member of FINRA/SIPC. DriveWealth may not establish investment accounts to residents of certain jurisdictions. For more information, including disclaimers, risk and transaction fees click here.
India account traded securities are provided by SIC Stocks & Services PVT Ltd. SIC does not make any personal recommendations to buy, sell or otherwise deal in investments. Investors make their own investment decisions. The services and securities provided by SIC may not be suitable for all customers and, if you have any doubts, you should seek advice from an independent financial adviser. For more information and disclaimers, click here.

 

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