E Caterpillar: Growth Momentum And Low Valuation Will Allow For Compelling Total Returns

Caterpillar (CAT) is the biggest and most famous construction and mining equipment company in the world. Caterpillar is a member of the Dow Jones Industrial Index, an index of 30 major US-based companies from different industries.

The Dow Jones index is not as diversified as the S&P 500 index, but for investors looking for low-risk investments into the biggest American companies, the Dow Jones can be worthy of a closer look.

Company Overview          

Caterpillar, which is valued at $80 billion, produces construction equipment as well as mining equipment. The company also has a smaller diesel & natural gas engine segment, an industrial gas turbines business, and a financing branch.

Caterpillar reported strong sales growth of 24% during its second quarter earnings release. This massive increase in Caterpillar’s revenues, coupled with strong operating leverage, allowed for earnings per share growth rate of 99% during Q2, as earnings rose to $2.97 per share during the quarter.

Growth Prospects      

The markets that Caterpillar sells to (construction & mining) are relatively cyclical, which makes Caterpillar’s business somewhat cyclical as well. Despite the fact that Caterpillar has generated solid earnings growth over long periods of time, results can see substantial swings both up and down on a year-over-year basis.

Both the construction as well as the mining industry are in a good position right now, as both benefit from strong economic growth around the globe. This has allowed Caterpillar to grow its revenues at a very compelling pace during the last couple of quarters.

Even though earnings growth will slow down over the coming years investors can still expect ongoing growth from Caterpillar in the future. Through some revenue growth and share repurchases, Caterpillar should easily be able to generate mid-single-digits earnings per share growth.

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Gary Anderson 1 year ago Contributor's comment

Cat could be increasing market share. But it must fear cyclical issues, business cycle and others.

Kirk Sheffield 1 year ago Member's comment

I've been impressed with $CAT.