Aside from being the biggest and the best at what it does, Caterpillar is cheap! Currently trading at just 10.3 times TTM earnings, Caterpillar is projected to have nice growth in the next few years. While earnings are expected to drop slightly in 2013 (a possible reason for the pullback in the share price) to $8.03 per share, the company is projected to increase this to $9.40 and $11.14 in 2014 and 2015, respectively, for an average forward growth rate of 17.8% after 2013. In other words, investors who wait out the “rough” year ahead should be handsomely rewarded. When you consider that shares trade for just 7.7 times 2015’s projected earnings, this sounds very attractive indeed.
We know that Caterpillar Inc. (NYSE:CAT) is the largest heavy equipment company, but are the smaller alternatives cheaper investments? One of the closest competitors is Japanese rival Komatsu Ltd (NASDAQOTH:KMTUY) which has a very similar product makeup to Caterpillar. Komatsu is projected to have a similar earnings drop to Caterpillar this year, but it trades at a much higher valuation of 16 times earnings. In the case of the big, diverse equipment manufacturers, buy American!
One smaller alternative worth looking at, however, is Joy Global Inc. (NYSE:JOY). Although Joy trades at a very cheap-looking 8.2 times earnings, upon further inspection there is a reason for this, and that is because earnings are expected to be stagnant for the next few years. 2012’s earnings of $7.24 per share are expected to drop to $6.21 per share this year, and remain under 2012’s level until at least 2016. Additionally, Joy is not nearly as diversified in its operations as Caterpillar, and only produces mining equipment.
Unless you are exceptionally bullish on the mining industry, Caterpillar looks like the best choice in the sector. Caterpillar has averaged a P/E multiple of around 13 over the past decade, and even more than this during economic upturns. Therefore, conservatively speaking, as long as no extremely negative surprises occur, Caterpillar Inc. (NYSE:CAT) should be a $105 stock again within the year. With the recent pullback, this may just be the optimal entry point for the best heavy equipment maker in the business.
The article The Best In The Business Is On Sale originally appeared on Fool.com and is written by Matthew Frankel.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.