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Should You Buy Caterpillar Inc. (CAT)?

The global economy continues its gradual, albeit painfully slow, recovery from the financial crisis. In particular, the housing market in the United States looks to be in the beginning stages of a clear recovery after its huge collapse during the depths of the Great Recession. Moreover, global economic development continues to show resilience, particularly in the emerging markets.

Given these industry tailwinds, and adding in the fact that the market continues to rally near all-time highs, you’d think the heavy machinery stocks, such as Caterpillar Inc. (NYSE:CAT), would be stellar performers over the past several months. Unfortunately for investors, that’s not the case. In a market of rising valuations, does Caterpillar represent one of the best values left in this market?

Caterpillar Inc. (NYSE:CAT)

Pervasive industry struggles

When Caterpillar Inc. (NYSE:CAT) reported its full-year 2012 operating results, there were plenty of reasons for investors to smile. The company achieved record revenue and earnings per share for fiscal 2012 of $66 billion and $8.48 per share, respectively. Revenue increased 10% year over year, and EPS climbed 15% as compared to the prior year.

Farm and construction machinery giant Deere & Company (NYSE:DE) had a record-setting quarter of its own. Worldwide net sales increased 9% during both the second quarter and over the first six months of the year, as opposed to 2012.

Net income clocked in at $2.76 per share, representing 5.7% quarterly growth year over year. Earnings per share over the first half of the year were $4.41, growing 13% from the same period the year prior.

Mining equipment maker Joy Global Inc. (NYSE:JOY) has struggled throughout 2012. The company reported its first-half sales and diluted earnings per share dropped 6% and nearly 10%, respectively, year over year.

Less-than-rosy outlooks

Unfortunately, the news since has only served to give investors pause about the state of heavy machinery stocks. First, in its full-year report, Caterpillar management provided a fairly dour 2013 outlook. Caterpillar Inc. (NYSE:CAT) expects revenue to come in between $60 billion to $68 billion and earnings between $7 per share and $9 per share this year. Notably, the midpoints of these ranges represented full-year declines versus 2012.

Things actually got even worse than many investors feared when the company reported its first-quarter results. Caterpillar Inc. (NYSE:CAT)’s earnings per share collapsed by more than 40% and sales dropped 17% year over year.

Moreover, Caterpillar Inc. (NYSE:CAT) revised its already-pessimistic 2013 outlook even lower. The company now expects $7 per share in full-year earnings amid $57 billion to $61 billion in sales, reflecting the remaining struggles the global economy is facing.

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