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Caterpillar CAT shares have been on quite the run after beating Q3 expectations in October. Investors should consider the stock for portfolio diversification through exposure to the Construction and Mining Industry.

Construction and Mining is in the top 8% of over 250 Zacks Industries and Caterpillar stock looks poised to benefit from its position as a leading manufacturer of construction and mining equipment that services a wide range of areas.

Recent Rally & Performance

CAT stock is up 20% since blasting Q3 EPS expectations by 23% at $3.95 a share. This represented a 48% increase from Q3 2021. Sales climbed 21% to beat top line expectations by 4% at $14.9 billion.

Caterpillar is up +14% YTD Vs. the S&P 500’s -18% decline and its peer group’s -7%, which includes H&E Equipment Services HEES and Terex TEX. More impressive, over the last decade CAT’s total return when including its stellar dividend is +260% to slightly edge the benchmark and beat its peer group’s +50%.

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Image Source: Zacks Investment Research

Growth & Valuation

CAT earnings are expected to jump 27% to $13.77 per share in FY22. Fiscal 2023 earnings are expected to rise another 8%. Earnings estimate revisions have significantly risen for both FY22 and FY23 over the last 90 days.

Sales are expected to climb 14% this year and another 5% in FY23 to $61.59 billion. Caterpillar’s FY23 sales would represent 12% growth from pre-pandemic levels with 2019 sales at $53.80 billion. 

Trading around $236 a share, CAT trades at 17X forward earnings. This is above the industry average of 12.3X but CAT has proved itself to be a worldwide industry leader. Plus, CAT trades below the benchmark’s 18.2X. This is intriguing as CAT has largely outperformed the broader market this year. Even better, the stock trades at a discount to its decade-high of 33.5X and closer to the median of 16.8X.

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Image Source: Zacks Investment Research

Bottom Line

With its stock still trading reasonably relative to its past and its earnings estimate revisions on the rise, CAT sports a Zacks Rank #2 (Buy). CAT also has an overall “A” VGM grade.

Business appears to be getting stronger which has caused the stock to rally following positive Q3 results. Higher highs could be around the corner and CAT offers a solid 2.04% annualized dividend yield at $4.80 per share.

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It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.

This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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