Caterpillar (NYSE: CAT) is an industrial giant. Founded in 1925, this industrial equipment maker has customers in more than 180 countries and more than 500 locations worldwide. It remains an iconic brand throughout the developed and developing world.
The past decade wasn’t especially kind to CAT, since the global economic slump meant money was tight for the kinds of projects where Caterpillar’s equipment is usually deployed.
But that has begun to change. In the past three years, the stock has regained its growth track, with CAT stock up 66% in that time. In the past year, CAT stock is up around 27%, and has helped keep the Dow Jones Industrial Average and S&P 500 chug along since they’re price and capitalization weighted averages.
Troubles for CAT Stock
However, year to date CAT stock is underwater by more than 12%. What gives?
Two simple words: trade war.
You can look at CAT stock’s price graph for 2018 and see how well its performance correlates with trade rhetoric, and recently, trade action.
Also bear in mind that it’s not just tariffs on equipment that reduce demand. It’s also how much use its equipment gets in key sectors.
For example, the Chinese have imposed tariffs on U.S. soybeans. Other crop prices have been hit as well. That means farmers’ income is going to be hit, as well as the big agriculture firms that buy their products.
In mining, the trade war has hit industrial metal prices like copper, tin and iron ore. If the mines are lowering production to protect their margins, equipment isn’t getting used at full capacity.
In housing and the roads needed for developing them, the same holds true. Tariffs on Canadian lumber means higher housing prices on top of rising mortgage rates.
Where This Leaves Caterpillar
But all these are short-term issues. It’s unlikely that this trade war with allies and adversaries will be drawn out to the point mutual economic destruction. It may mean another quarter of subdued results, but the worst of global economic problems are behind us.
Just as the market sells stocks lower than they should on bad news, it also raises them much quicker on good news. And when good news hits CAT again, it will take off.
If you’re a long-term growth investor, then you should be looking at the three- and one-year returns for CAT stock, which are very impressive for a major global industrial company with an $82 billion market cap.
Q1 was very good for CAT — revenues were up 31% and profit per share broke a Q1 record. Also bear in mind that CAT has a substantial stock buyback plan in place — it bought back $500 million in common stock in Q1. That will help buoy earnings if a trade war hurts sales.
The point is, CAT knows how to navigate these kinds of economic times. And now is a great time to get on board while most investors are on the sidelines.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
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