Wind at its back?
What investors need to know is that this event won’t deter their favorite company from its path of growth. Huge inventory continues to plague companies in China with dealers holding back fresh orders. Yet, an uptick is visible, and can only be expected to gather steam as the government rolls out stimulus packages to boost infrastructural activities.
Joy sees an uptick in electricity demand to fuel coal consumption in China this year. GE had all good things to say about China after revenue from its industrial segment climbed 9% last quarter on improving demand. So did Alcoa Inc. (NYSE:AA), which pegs the Chinese economy to grow over 8% this year. That’s in line with Caterpillar’s forecasts. After announcing a new facility for its wheel and transportation business in China last month, Alcoa has just struck a deal with Commercial Aircraft of China, indicating some movement in the sluggish market. Two of Alcoa’s predictions particularly bode well for Caterpillar -- demand for aluminum from China’s heavy-truck industry to grow as much as 19% and that from commercial construction to grow 8% to 10%.
The optimism will be easier to digest once mining companies, who serve as critical customers for equipment makers like Caterpillar, ring in the hope bell. We’ve already got some in line, though. After Rio Tinto plc (ADR) (NYSE:RIO) reported 4% higher production for 2012 with record iron ore shipments, BHP Billiton Limited (ADR) (NYSE:BHP) surprised many by citing China as the reason behind the 3% bump up in its last quarter iron ore production. The top two mining giants are hopeful of a rebound in the Chinese market this year, with Rio even suggesting that the worst in China could be already over. That Rio is staying put with its plans to pump billions in the Australian mining market over the next few years instills further confidence.
The Foolish bottom line
While the year has kicked off on an excellent note, how China treats Caterpillar and others will only be revealed some months down the line. Meanwhile, housing in the U.S. is in a sharp recovery mode, and industries like aerospace and automotive are picking up.
Caterpillar took off nearly $2 billion worth of inventory last quarter, and sounds stiffly low on its full-year guidance. Don’t panic, because Caterpillar isn’t trying to be an ‘alarmist,’ it’s just being ‘cautious.’ That’s exactly the Caterpillar we’ve all known for years – it likes to surprise rather than shock. Stay invested, and stay tuned. Click here to add Caterpillar to your stock watchlist for all updates, news, and analysis.
The article Why This Dow Stock Could End up Surprising You originally appeared on Fool.com and is written by Neha Chamaria.
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