At first glance, this industrial conglomerate looks to
be ill-suited for the Dow's forward-thinking index
makeup. Shares traded for $88 on Oct. 21, 2011, and two
years later, are slightly lower.
Yet in this instance, timing is everything. In fact,
Caterpillar has very strong exposure to the most dynamic
themes set to play out in coming decades:
Billions need to be spent just in the U.S. according a
recent report by the American Society of Civil Engineers.
These engineers give U.S. infrastructure
, and in countries such as India and Brazil, the
situation is even more dire.
In a 2012 interview
citing China's infrastructure spending, Caterpillar's
head of China operations, Richard Lavin, noted that
"roads, bridges, airports, sewage systems, energy -- all
of these are areas that we play in, it's the core of our
business," adding that "I think we can expect a fairly
broad and significant impact across our business."
Caterpillar remains as one of the few companies in the
world with the capability of providing all the gear
needed in major infrastructure projects.
Commercial And Residential Construction
Asia and Latin America have undergone building booms in
the past half decade, but new construction of commercial
and residential structures in Europe and the U.S. (which
still collectively account for half of global GDP). Yet
with expectations of a slow and steady economic upturn in
the next few years on both sides of the Atlantic,
Caterpillar should start to cite these markets as growth
drivers. In recent years, Caterpillar has been mostly
talking about emerging-market growth.
Of course Caterpillar can't thrive when commodity prices
are falling, as has been the case for much of the past
two years. Mining budgets have been sharply slashed to
preserve cash flow. Yet mining firms know that heavy-duty
mining equipment only lasts a few years, and must
eventually be replaced.
We're in the pent-up phase of spending on mining
equipment right now, but an upgrade cycle into mid-decade
appears inevitable, even if commodity prices don't move
back up to previous peaks.
This is Caterpillar's least cyclical business, as
investments in boosting the global crop yield continues
apace. Caterpillar, along with key rivals, has been
heavily investing in new technologies (such as GPS-based
steering) that not only make its clients more productive
but also compel them to consider an upgrade cycle.