The Best and Worst Dow Stocks for the Next 12 Months

12. Caterpillar Inc. (NYSE:CAT)

Upside Potential: 20.0%

Market Cap: $141 billion

Number of Hedge Fund Holders: 62

Caterpillar Inc. (NYSE:CAT) manufactures construction and mining equipment, diesel and natural gas engines, industrial turbines, and diesel-electric locomotives.

The outlook for Caterpillar Inc. (NYSE:CAT) has been mixed recently, and the stock has thus been seeing lower levels since the start of the year. Although precise exposure to China is not clear, the company derives 18% to 19% of its revenue from the Asia Pacific region, and thus, it has substantial exposure to China. Higher tariffs would result in steeper import costs for Chinese companies and, therefore, could lead to deal cancellations or project postponements.

Despite the macroeconomic pressures, consensus still sees a 20% upside potential with a 1-year median price target of $355. An analyst at BofA Securities recently lowered his share price target to $335 from $414 but maintained his Buy rating. He holds a cautious view on the Machinery, E&C, and Waste sector and expects a challenging earnings season for companies in the industry.

Similarly, JP Morgan analyst Tami Zakaria reiterated his Overweight rating on the shares but reduced the price target to $380 from $490 earlier. The analyst believes that a higher recession probability may weigh on the industry outlook and the near-term guidance of construction equipment group companies. On a slightly worrying note, the analyst also said that the earlier expected second-half acceleration might not materialize.