Caterpillar Inc. (CAT): Can You Count On It Any Longer?

Shares of Caterpillar Inc. (NYSE:CAT) rallied during the past several days by nearly 9%. Nonetheless, this heavy-machinery company hasn’t done well in the past quarter. Is it time to invest in heavy-machinery companies such as Caterpillar Inc. (NYSE:CAT)? Will these companies surprise in 2013? Let’s examine several leading heavy-machinery businesses and analyze their recent developments.

Is this CAT ready to pounce?

According to Caterpillar Inc. (NYSE:CAT)’s first quarter financial results for 2013, Caterpillar’s net revenue was 17% lower than the results recorded in the same time in 2012. Operating profits fell from 14.5% in Q1 2012 to 9.2% in Q1 2013. The sharpest fall was in resource industries, which includes mining-equipment sales. One of the reasons for the drop in sales was due to changes in dealers’ new machine inventories. But the drop in revenue was in all regions and across all of its main business segments.

According to the company’s recent monthly update, machinery-retail sales fell during March in all regions except Latin America. Retail sales of power systems also fell across sectors except in the transportation sector, which grew by 19% in March.

One of the factors that may have helped drive the company’s stock higher in recent days is Caterpillar Inc. (NYSE:CAT)’s share-repurchase program of $1 billion.

But beyond this issue, many speculate that the company might start to show growth in the coming months. The recent decision by the Reserve Bank of Australia to cut interest rates by 25 basis points to 2.75% may jump-start the mining industry in Australia. This could be reflected in a rise in Caterpillar Inc. (NYSE:CAT)’s sales in the resource industries sector.

High natural-gas prices in 2013 compared to 2012 may strengthen demand for coal in the U.S for generating electricity, which could also raise the demand for Caterpillar’s mining equipment. These issues might curb the recent fall in Caterpillar Inc. (NYSE:CAT)’s revenue, but as long as the leading economies show slower growth (as in China and the U.S) or even slowdown (as in Europe), then Caterpillar’s revenue is likely to be adversely affected by these trends.

Will Joy bounce back?

Joy Global Inc. (NYSE:JOY) is another big heavy-machinery company focused on mining equipment. Most of the company’s revenue comes from coal projects. Much like Caterpillar Inc. (NYSE:CAT), Joy’s stock also hasn’t performed well and has shed 5% year-to-date.

As I have pointed out, if demand for coal in the electricity sector begins to rise in the coming months, considering the high natural-gas prices (compared to last year) such a rally would likely augment Joy’s revenue in the coming months. In the first quarter of 2013, coal production remained lower than the production recorded in the first quarter of 2012 and 2011 (each).