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Caterpillar (CAT) reported 3Q25 earnings Wednesday morning and the stock is exploding higher (+13% as I write). I’m sitting on some pretty big gains and I was tempted to sell but I’m not going to for a couple of reasons.

Let’s start with the reasons to sell. CAT is trading more than 50% above its 200 DMA. I was taught that 30% is when you start to get nervous. In other words, the stock is significantly overbought technically.

CAT is also overvalued fundamentally. CAT earned $21.90/share in 2024 and $21.21/share in 2023 – and it appears like it will earn a few dollars less this year. That means it’s trading at nearly 30x peak earnings. Very expensive.

The first reason I’m not going to sell is philosophical. I have a bias against selling great companies simply because they are technically overextended or fundamentally overvalued. The reason is that great companies compound earnings over long periods of time and therefore grow into their valuations. I see the same thing happening with CAT – especially because of my second reason.

The second reason is that I believe we are in a secular bull market for mining and infrastructure. The most obvious example is the build out of data centers to support AI. But the price action in commodities suggests to me that they have been overlooked and underinvested in for too long as well.

CAT is the leading machinery manufacturer that miners use to extract commodities and that builders use to build infrastructure. In other words, I believe CAT is in a sweet spot with demand for its machines poised to be strong for years to come. Therefore, my bias not to sell great companies is even stronger in the case of CAT.

In conclusion, while I wouldn’t be surprised to see a nasty correction, I’m holding CAT for the long term.

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