Caterpillar Inc. (NYSE:CAT) factored into Jim Cramer’s morning appearance on the 24th in an interesting manner. During the show, the CNBC TV host lamented how the market was acting against stocks that were perceived to have exposure to data centers. Data centers have become a thorny political issue as the public in several areas has protested against their construction. In his appearance, Cramer compared Caterpillar Inc. (NYSE:CAT) to Deere and pointed out how it was suffering despite having prospered earlier due to its data center exposure:
“Okay, they called the trough in the farm cycle. Even though the steel could go up because of Canada, people don’t care. Why? Because Deere’s got nothing to do with, the data center. We hate the data center. Alright, so Caterpillar, a lot to do with the data center, we loved it for a long time, now we hate it. First we loved it, then we hated it. I don’t mind. I don’t own Caterpillar for my Trust. . .look at this, this Caterpillar was on fire, but then, it’s historic multiple was probably about 17, now it’s [inaudible] trading at 30.”
To say that Caterpillar Inc. (NYSE:CAT) has benefited from the data center buildout would be an understatement. In its second quarter, the firm’s order backlog swelled to $72. billion after adding $9.4 billion in new orders. Caterpillar Inc. (NYSE:CAT) also grew its energy business by 17%, along with a 72% growth in the Power Generation business. However, the firm’s rich valuation, as suggested by a forward P/E ratio of 31, also suggests that there is little potential for further upward movement and more potential for downward movement should management fail to meet expectations.
Looking at Deere & Company (NYSE:DE), its forward P/E ratio of 27 is slightly lower than CAT’s. As opposed to CAT, which benefits primarily from power generation for data centers, DE benefits from more construction equipment sales. In the second quarter, the firm’s Construction and Forestry sales grew by 18% while operating profit jumped by 84%. Additionally, Deere & Company (NYSE:DE)’s management also increased full year earnings guidance and outlined that its backlog stretched into 2027. However, agriculture continued to weigh on the firm as its Production and Precision Agriculture sales dipped by 10%, leading its bears to comment that any slowdown in data center buildout could create tailwinds.
Shifting towards hedge funds, 84 hedge funds held a stake in CAT during Q2. The figure was lower for Deere & Company (NYSE:DE) as it sat at 59. Shares short as a percentage of float was roughly similar and ranged between 1.5% to 1.9%.
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Disclosure: None.
