GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

Caterpillar Exhibits Promising Prospects for 2013

January 12, 2013 | About:
Muhammad Bazil

Muhammad Bazil

3 followers
After a volatile market performance in 2013, Caterpillar Inc. (CAT) has shown promising prospects for 2013. There is sufficient evidence pointing toward higher revenue from the company’s global operations and strong market performance backed up by a favorable rating from analysts. Caterpillar’s main business operations include manufacturing of construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives. Caterpillar’s operations are divided into two major segments: machinery and power systems, and financial products. Considering the operations of the company, the revenue mainly depends upon the scope of development activities globally.

In 2012, Caterpillar’s stock price reached its peak at around $116 in the first quarter of the year and then it showed a steep decline. In the following months, the stock reached its low at around $78. Although the stock has not reached its peak again, it is gradually rising toward it. Currently the stock is being traded within the range of $94.04 and $94.92. The following chart represents the trend of stock price of the company over the past one year.

2046719146.jpg

It can be observed from the chart that after the first quarter of 2012, the stock price remained volatile; however, toward the end of the year it has exhibited an upward trend. This trend is expected to continue in the near future.

The analysts at The Street have given Caterpillar’s stock a buy rating, considering the promising prospects of the company for 2013. Caterpillar’s revenue has increased by 4.6% in the most recent quarter ended Sept. 30, 2012 as compared to the company’s revenue in the same quarter last year. The company’s revenue is also higher than the industry average by 0.5%. The earnings per share of the company have also improved by 48.5% in the most recent quarter as compared to the same quarter last year. Considering all these factors, the analysts believe that it may be favorable for investors to buy Caterpillar’s stock.

Growth in Caterpillar’s Sales

It was recently reported that Caterpillar’s global sales grew by 5% in three months to the end of November. Although sales in North America showed a weakening trend, Caterpillar’s sales in Latin America continued to improve. In Latin America, sales rose by 15% in the month of November.

Caterpillar’s Prospective Growth in Global Operations

Although Caterpillar’s sales in most international markets remained sluggish throughout 2012, the company expects the sales to be strong in 2013. One of the reasons behind this positive expectation is the disclosure of China’s comprehensive infrastructure investment program. China intends to initiate an overhaul of its infrastructure to boost its economic growth and this investment will give an instant push to the demand for construction products. This will provide Caterpillar with an opportunity to increase its sales in the Chinese market. Caterpillar expects a positive change in the Chinese market in the very first quarter of 2013 and the management maintains its long term growth prospects for China.

Caterpillar’s president, Richard Levin said, “With the announcement of the $150 billion infrastructure investments made by China's National Development and Reform Commission, we could expect to see some positive change in the industry, maybe as early as the first quarter of 2013.” According to Mr. Levin, China’s decision to boost its investment infrastructure “is going to have a direct, positive impact on our industry and Caterpillar's business in China.”

Caterpillar specifically expects a rise in the demand for mining products in the Chinese market. Therefore, it can be said that the financial performance of the company in 2013 may be driven by higher revenues generated from high demand in China. Also benefiting from the situation will be CNH Global NV (CNH) which is a direct competitor to Caterpillar. Following the announcement regarding the investment plan and the expectation regarding higher demand in China, the share price of CNH also went up along with that of Caterpillar.

After the analysis of Caterpillar’s market performance, expectations surrounding its stock, and prospects for the company’s global sales, in my opinion, investors should buy the stock in the company. The rationalization behind this recommendation is that the share price of Caterpillar is following an upward trend and this trend is expected to continue in the foreseeable future. Therefore, this may be an opportunity for investors to buy the company’s stock at a low price and capitalize on it when the stock price rises in the near future. Therefore, short term investors can benefit from this situation.

About the author:

Muhammad Bazil
Muhammad Bazil is a financial journalist and editor for a variety of websites, public policy organizations, and book publishers. He has written hundreds of published articles and blog posts on topics including budgeting, credit management, real estate and investing. His articles have been featured on the homepage of Yahoo!, MSN and numerous local news websites.

Rating: 3.0/5 (2 votes)

Comments

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK