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Caterpiller Keeps Digging Up Growth

A record-high order backlog sets up impressive future performance


Caterpillar (NYSE:CAT) said this week its order backlog reached record levels during the quarter, and given that many of its products have long lead times — with some not slated to ship until 2014 — that bodes well for future performance.

The world’s biggest manufacturer of construction and mining equipment revealed the all-time-high backlog figures at the ISI Annual Industrial Conference, says Zacks Equity Research in a new note to clients. Caterpillar, a component of the Dow Jones Industrial Average, also affirmed its fiscal 2012 outlook for earnings of about $9.25 a share on revenue of $68 billion to $72 billion.

The backlog figures, which portend good things for long-term growth, help bolster the case for Caterpillar as my top stock pick of 2012 (here are all of InvestorPlace’s Top Picks for 2012). CAT share are up 22% for the year-to-date, beating the broader S&P 500 by nearly 13 percentage points.

Caterpillar’s backlog improved steadily throughout fiscal 2011 and attained record levels by the end of the year, notes Zacks, which rates the shares at buy. By year-end the company reported an order backlog of $29.8 billion. That represented a 59% increase over the year-ago period and a 4% gain from the end of the third quarter.

The key to Caterpillar is that it’s finely attuned to the global economy, and anxiety over recession in Europe and a possible slowdown in China had beaten a good stock down at the end of 2011.

Caterpillar’s most recent beat-and-raise quarterly results and robust order backlog make the case that global recession fears were overdone. Emerging-market demand — especially from China — for coal, copper and iron ore have made Caterpillar’s recent focus on mining acquisitions look quite canny, indeed.

It bought mining company Bucyrus International last summer for $8.8 billion, adding shovels and drills to its portfolio of heavy equipment sales.

Mining is expected to remain strong, and Caterpillar exited 2011 with a sizable order backlog for mining equipment, Zacks says.

“The company is doggedly adding production capacity for many of its mining products,” notes Zacks. “Caterpillar’s recent string of investments include expansion in Tosno, Russia for off-highway trucks, new mining truck facility in Indonesia and expansion of existing facility, capacity expansion of mining trucks produced in Illinois, expansion of mining truck capacity and a new small engine facility in India, and a new small excavator and tractor facility in Georgia.”

A new parts distribution center in California and expansion of an R&D center in Wuxi, China, are also in the pipeline, Zacks says.

“We believe the top line at the company will continue to grow on the back of torrid demand for construction and mining equipment,” writes Zacks. “Caterpillar’s expansion plans of opening new facilities and furthering existing operations, particularly in the emerging markets, will boost its long-term potential.”

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