We recently compiled a list of the 10 Best Industrial Machinery Stocks to Buy Now. In this article, we are going to take a look at where Caterpillar Inc. (NYSE:CAT) stands against the other industrial machinery stocks.

Industrial stocks form the backbone of the American economy, encompassing companies that manufacture and maintain equipment used in the construction and manufacturing markets, such as compressors, turbines, and hydraulic systems. Their presence in the Dow Jones highlights their significance in the market.

According to Global Market Insights, the industrial machinery market, which was valued at $693.7 billion in 2023, is projected to grow at a compound annual growth rate of 7.5% between 2024 and 2032 as a result of the increasing application of automation and smart technologies, which significantly boost efficiency and production. Material handling and robotics are two important industries driving this expansion since they are essential to contemporary industrial operations.

Regionally, the Asia-Pacific area is driving this expansion as per the aforementioned research, with growing industrialization in countries like China and India. In terms of country, the United States is leading the North American industrial machinery market in terms of revenue, with an estimated 2023 revenue of $246.5 billion and a projected 2032 revenue of $402.9 billion. Moreover, North America accounted for 45% of the industrial machinery market in 2023.

Looking ahead, according to Deloitte’s Manufacturing Industry 2024 Outlook, the manufacturing sector is utilizing the Infrastructure Investment and Jobs Act, CHIPS Act, and Inflation Reduction Act to boost growth through improved semiconductor manufacturing and construction. Digital transformation is still essential in spite of economic challenges and a lack of skilled workers. Industrial metaverse capabilities are being integrated into smart factory systems, which are 12% more productive and cited by 86% of manufacturing leaders as essential for competitiveness. A game-changer, generative AI reduces labor restrictions while improving supply chain efficiency and product design.

That said, according to Interact Analysis’s Manufacturing Industry Output Tracker (MIO), which Industrial Machinery Digest released on May 30, 2024, the global manufacturing industry is predicted to grow by just 0.6% in 2024, showing stagnation or minor decline in the majority of regions. The study mentioned that China’s growth estimate was reduced from 2.8% to 2.4%, pointing out economic issues that may affect its 50% global manufacturing share. Although a slight decline is predicted in 2026 before a consistent rise through 2028, a recovery is projected in 2025 as global conditions improve. While Taiwan, South Korea, and Singapore benefit from the semiconductor resurgence, the United States exhibits stronger manufacturing fueled by rising consumer expenditure and moderating inflation. Challenges include the slowdown in European manufacturing and pressures on the machinery market caused by high loan rates, which increase costs and reduce order intake. High living expenses still limit demand even though post-Covid supply chain problems have decreased.

Adrian Lloyd, CEO of Interact Analysis, made the following comment in Manufacturing Industry Output Tracker (MIO):

“The global outlook for manufacturing output is mixed to say the least. Our projections are holding but there are no clear signs of where recovery will come from and how strong it will be. As a result, we will be watching closely to see how constrained consumer spending in China, a strengthening US economy and global events will affect conditions.”

He further added:

“The machinery market appears to be experiencing more challenging conditions than manufacturing overall, as global uncertainty leads to caution around investment in equipment.”

Data from the Federal Reserve in October revealed that U.S. industrial production dropped in September, largely due to reduced factory output influenced by a strike at Boeing Co. and the impact of two hurricanes. Production across factories, mines, and utilities declined by 0.3%, following a revised 0.3% increase in the previous month. However, the industrial sector of the broader market has risen by 22.4% since the beginning of the year.

Methodology:

We sifted through holdings of Industrial Machinery ETFs and online rankings to form an initial list of 20 industrial machinery stocks. Then we selected the 10 stocks that were the most popular among institutional investors. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024, according to Insider Monkey’s database. We have used the stock’s revenue growth (year-over-year) as a tiebreaker in case two or more stocks have the same number of hedge funds invested.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)

Caterpillar Inc. (NYSE:CAT)

Number of Hedge Fund Holders: 49

Caterpillar Inc. (NYSE:CAT) is a leading producer of locomotives, power solutions, and heavy machinery. It is currently the biggest heavy equipment producer in the world. The company is divided into four reportable segments: resource industries, energy and transportation, construction industries, and Cat Financial. Its products are sold through a global dealer network that consists of 160 dealers and over 2,700 outlets. In addition to providing wholesale finance for dealers, Cat Financial offers retail financing for engines and machines to its clients, boosting the possibility that Caterpillar products will be sold.

Caterpillar Inc. (NYSE:CAT)’s broad range of mining, construction, energy, and transportation products keeps it at the top of the global heavy machinery industry. As a reputable manufacturer of mission-critical heavy machinery for almost a century, the firm has become one of the most valuable brands in the world. The strong brand is supported by incredibly dependable, effective, and high-quality items. Additionally, Caterpillar’s capacity to reduce the total cost of ownership is valued by customers.

Caterpillar Inc. (NYSE:CAT) maintained a strong operating profit margin and cash flow in Q3 2024, despite a 4% YoY decline in revenue that was primarily driven by lower sales volume in the construction and resource segments. The firm showed good financial management by ending Q3 2024 with $5.6 billion in enterprise cash. The management views the varied end markets as a stabilizing element despite fluctuating segment performance.

Ric Dillon’s Diamond Hill Capital owned the largest stake in Caterpillar Inc. (NYSE:CAT) at the end of Q2 2024, as per Insider Monkey’s database. It owns 1,349,608 shares worth $527.86 million as of Q2.

Overall CAT ranks 6th on our list of the best industrial machinery stocks to buy now. While we acknowledge the potential of CAT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CAT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.

Disclosure: None. This article is originally published at Insider Monkey.