Industrial cyclical – Caterpillar (CAT), Value stock Hold, Can buy on declines.
Has been a good value stock, returning 17% in the past year and 180% in the past 5 and 219% in the past 10, which is good for a cyclical barely growing revenues at 3% a year on average with peaks and troughs. Revenue and earnings estimates are also for low single digits for the next 3-4 years.
Positives
Increasing Service revenue stream will improve profit margins. They want to acquire more service companies and focus on this.
They did manage to increase prices this year, not an easy task unless your product is superior in this industry – good brand recognition.
Well diversified – lot of end user markets and customers from construction to O&G, and transportation.
They will also get more revenue from AI – data center buildouts.
Negatives
- Economic Headwinds: Global challenges like Europe’s manufacturing recession and China’s weak housing market could impact CAT’s performance, plus the US’ chances of a recession have now increased above 30% following a softer jobs market.
- Cyclical Nature: Despite diversification, its core industries are still cyclical, exposing CAT to economic downturns.
- Valuation Risks: The current stock price reflects much of its potential, potentially limiting the upside if we do not get a rebound in cyclical growth.