Here's Why Caterpillar (CAT) Is A Strong Buy Stock
Zacks Investment Research | May 23, 2017 05:00AM ET
In today’s investment world, it can be easy to get lost in the “next big thing.” Everyone wants to find the next startup that’s going to return 200% in two years. That’s just human nature, and it totally makes sense. But smart investors know that sometimes the best buying opportunities come from the tried-and-true classics, and that’s exactly what we have right now with Caterpillar, Inc. (NYSE:CAT) .
Founded in 1925, this construction equipment manufacturer has grown to become one of America’s most iconic brands. Investors know the company well thanks to its long history of delivering solid dividends, and now—after a strong first quarter—the stock has some fresh momentum.
In fact, Caterpillar’s most recent quarter was the first in 10 quarters that saw year-over-year improvement on the top and bottom lines. What’s more, the company has set off on a cost-cutting mission that should continue to improve earnings, even as low-end user demand slumps.
Check out some of the keys to Caterpillar’s strength right now:
As we know, the Zacks Rank is inherently linked to earnings estimate revisions, so it’s logical to see a Zacks Rank #1 (Strong Buy) paired with strong revision activity. Ever since the company raised its own guidance after its earnings report, analysts have been scrambling to adjust their estimates upwards.
Investors will also note that Caterpillar falls into the Top 25% of the Zacks Industry Rank. It’s our belief that your best stocks tend to come from the best industries, so this is a positive indicator. As you can see in our Industry Overview , the Manufacturing – Construction and Mining group has gained more than 10.5% year-to-date.
Of course, income-focused investors are sure to be pleased by the company’s 3% dividend yield. This certainly isn’t the biggest dividend you’ll see on the market, but it’s always nice to have income-producing stocks like this in your portfolio, especially when a company gets to a point where growth is more difficult.
But even in the growth department, we see some encouraging signs from Caterpillar. As mentioned, the company is cutting costs, and we’re seeing this initiative have a serious effect on earnings. Indeed, our current full-year Zacks Consensus Estimate calls for EPS growth of nearly 20%. Current estimates also call for annual sales growth of 4.35% this year and 6.27% next year, which is not bad for a 92-year old company.
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Shares of CAT are now hovering around their 52-week high, and it will be interesting to see if and when the stock breaks into a new range. There’s been plenty of speculation about a new infrastructure deal coming out of this administration, so look for any news on that front to help the effort. If that gets delayed, continued earnings strength should keep boosting the stock too. We expect Caterpillar to report again on July 25.
Want more stock market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!
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