Caterpillar Inc. (NYSE:CAT), the world’s largest producer of earthmoving equipment, has done very well over the past few years, doubling its annual revenues since the financial crisis. I was hesitant to recommend it as an investment until recently because I was afraid it was getting too expensive. Since the beginning of February, however, shares have fallen 13.4% and are over 21% below their 52-week high at a time when it seems like most of the market is reaching new highs daily. I believe that it is time to put Caterpillar Inc. (NYSE:CAT) back on the radar, as it is not going to be on sale like this forever.
About Caterpillar
Caterpillar Inc. (NYSE:CAT)’s recognizable yellow machines are used all over the world, and it is a truly global company with the majority (63%) of its revenues coming from outside of North America. Caterpillar divides its business into five operating segments: Construction Industries, Resource Industries, Power Systems, Financial Products, and Other.
The Construction Industries segment sells machines such as loaders and excavators to the construction and mining industries. This is the segment with the most to gain from the economic recovery, in my opinion, as it will lead to increased spending on infrastructure and other construction projects.
Resource Industries produces machinery for the mining, forestry, paving, and tunneling industries. This is Caterpillar’s largest segment, accounting for 32% of revenues, and was greatly expanded by Caterpillar’s acquisition of Bucyrus in 2011.
Power Systems is Caterpillar Inc. (NYSE:CAT)’s second largest segment, and produces reciprocating engines, turbines, diesel-electric locomotives, and components for all of those applications. The engines produced by the segment are used in the machinery produced by the company’s other segments. Power Systems has undergone significant growth lately, and the company has opened new engine facilities in Brazil, China, and India.
Financial Products in Caterpillar’s in-house financing division, providing equipment financing to both dealers and customers. The segment also includes insurance products for customers and dealers to support purchasing and leasing new equipment. While this segment only contributes a small amount of the company’s revenue (4%), it indirectly contributes much more, as much of the company’s equipment sales would not be possible without the services the segment provides.
Growth
While increased infrastructure spending will benefit all heavy equipment and construction-related businesses, Caterpillar should have a particular advantage. Its size allows Caterpillar to benefit from economies of scale and run more efficiently in terms of materials sourcing and manufacturing processes. Caterpillar Inc. (NYSE:CAT)’s dealer network is also incredibly strong and has tremendous reach across the globe, with the majority of the company’s dealers located outside of the U.S.
