The Rising Influence of Rising Affluence

[DewDiligence]

CAT featured prominently in Barron’s cover story:

https://www.barrons.com/articles/industrial-stocks-are-getting-ready-for-10-years-of-outperformance-heres-how-to-play-it-51602280389

Caterpillar will benefit just as it has in previous industrial cycles: by supplying the industry with the machines necessary to build whatever needs to be built. …Sales are likely to accelerate in the coming decade, and this time around the company can also improve profit margins and make sales a little less cyclical by adding services related to connecting and monitoring machines.

By 2019, Caterpillar had one million connected machines around the globe. Its stock is trading for about 21 times estimated 2021 earnings of $7.26 a share—but that may not be as expensive as it appears. Cyclical companies like Caterpillar typically trade at high price/earnings ratios when earnings have sagged. Caterpillar’s earnings are well off its previous peak earnings of about $11 a share in 2018, when its P/E ratio was about 13 times.

The time to buy Caterpillar is when things are starting to get better. And things are getting better. Wall Street expects sales to rise about 8% a year for the next four years, hitting $56
billion by 2024, after growing at a 2% clip from 2016 and 2020.

In the expected industrial upturn, shares can trade up 50% from Caterpillar’s average price of $144 during 2017-18, when Caterpillar last produced peak earnings. That is roughly $210 to $220 a share—about 20% higher than CAT stock’s all-time high, set at the start of 2018.

CAT is often thought of as a construction-equipment company, but the Resource Industries (mining) segment and the Energy & Transportation segment produce 60% of the company’s product sales.