The market for construction equipment is huge. According to Statista, sales of construction equipment worldwide are forecast to reach $113 billion this year. And North America (U.S., Canada and Mexico) is the second largest market for construction and machinery equipment sales worldwide, after number one ranked China.
While the market will no doubt slow this year along with most sectors of the economy due to the Covid-19 pandemic, it nevertheless remains a massive opportunity for investors, both within the U.S. and overseas. Developing countries such as India and China are currently driving demand for construction and industrial machinery equipment due to multi-billion dollar infrastructure projects that are being funded by the country’s governments.
The market for agriculture machinery and equipment is equally large. The global agriculture equipment market is forecast to reach $227.8 billion by 2026, representing a compound annual growth rate (CAGR) of 7.2% during the forecast period, according to Fortune Business Insights.
Given the size of the market and enormous growth potential over a sustained period of time, investors would be smart to consider machinery companies that are well-positioned to capitalize on the current opportunity. Here are 4 machinery stocks that are ready to move higher in the coming months and years:
- Caterpillar (NYSE:CAT)
- Komatsu (OTCMKTS: KMTUY)
- Deere & Company (NYSE:DE)
- Manitowoc Company (NYSE:MTW)
Companies that specialize in manufacturing machinery and equipment for use in construction, agriculture and industrial output are becoming more technology focused than ever before — relying on connectivity, autonomous vehicles, robots and drones to accomplish tasks that used to be done by dozens of human workers.
Top Machinery Stocks 2020: Caterpillar (CAT)
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We’ll start off with the world’s largest construction equipment manufacturer. A Fortune 100 company, Caterpillar manufactures heavy-duty construction vehicles, as well as the engines that power those vehicles and machinery.
Founded in 1925, the CAT logo is today one of the most recognizable and valuable brands in the construction and heavy equipment industries. The companies stock looks like a bargain right now at $127 a share.
While CAT stock has recovered from a March low of $95.50, it is still trading well below its 52-week high of $150.55 and well off its all-time peak of $170.30 per share. In fact, Caterpillar shares are now trading at their cheapest valuation since 2012.
As recently as July 8th, CAT stock received an upgrade on Wednesday from Wall Street firm SumZero.com, which sees value in the company and raised its price target on the company’s shares to $164.00. Bank of America also recently upgraded CAT stock to “Hold” from “Sell,” noting improving fortunes for the company as the U.S. economy reopens and more construction projects get underway.
Analysts note that Caterpillar has a history of generating solid and consistent profits for investors. Since 2016, the company has grown revenue by 12% compounded annually and core earnings have grown at a compound annual rate of 54%. And despite the Covid-19 shutdown, Caterpillar is well-positioned to weather the storm.
Operating in a cyclical business for nearly 100 years, management at the company are always prepared for an economic downturn. At the end of the year’s first quarter, CAT had $7.1 billion of cash on hand and available global credit facilities worth $10.5 billion — which is plenty to see Caterpillar through a second wave of the pandemic.
Investors should also take note of Caterpillar’s impressive dividend yield of 3.6%, which the company has maintained even as other firms have slashed or suspended their dividend this year amidst the economic turmoil. Caterpillar is on track to pay an annual dividend of $4.12 per share this year and has 550 million shares issued. That equates to a total dividend payout of $2.3 billion in 2020.
While that’s a hefty payout, Caterpillar’s cash position will enable the company to maintain the dividend despite the economic downturn. On a recent call with analysts, company Chief Executive Officer Jim Umpleby said maintaining the dividend is a “priority.” The companies profitability, cash position and dividend should prove attractive to investors.
The consensus view of analysts is that CAT stock is currently undervalued. Among 21 analysts with 12-month price targtes on the stock, the median forecast is for CAT stock to reach $135.00 a share.
The high estimate is a stock price of $198.00 per share, while the low estimate is $95.00 per share. The median estimate represents a +5.82% increase from the last closing price of $127.57 per share. The current consensus among 26 polled investment analysts is to “buy” CAT stock.
In terms of foreign machinery stocks, its hard to beat Komatsu of Japan, the world’s second largest manufacturer of construction and mining equipment after Caterpillar. Headquartered in Tokyo, Komatsu manufactures construction, mining and forestry equipment, as well as diesel engines and industrial equipment including press machines and generators. The company’s proximity to China means that it is involved in many of that country’s largest infrastructure projects, as well as having sizable sales in Indonesia and India.
The company’s stock has rebounded strongly since it bottomed at $14.26 a share in March and has risen 43% since then to $20.44 a share. Analysts who cover the company seem to be bullish on its prospects. Of 13 analysts that have price forecasts for Komatsu, the median target is $21.31 a share, with a high estimate of $32.49 and a low estimate of $15.75.
Five analysts have “buy” recommendations on the stock, while nine analysts say to “hold;” there are no “sell” ratings on Komatsu stock. The reason for optimism stems from the fact that Komatsu’s core business remains strong, while it is also poised to capitalize on the so called “smart construction” shift into new areas such as robotic and autonomous vehicles.
Komatsu also benefits from a stable balance sheet. The company had $2.30 billion cash on hand at the end of the first quarter, and total assets worth $33.61 billion in the same period. Meanwhile its long-term debt was a manageable $3. 77 billion.
Like the other behemoths on this list, Komatsu is well positioned to ride out the global pandemic.
Deere & Company (DE)
Source: mark stephens photography / Shutterstock.com
We recently wrote about Deere & Company, the maker of John Deere brand agriculture equipment, as a top agriculture stock. But more than anything else, the company is a major manufacturer of heavy equipment, and not just in farming.
In addition to making agriculture machinery such as tractors and combines, Deere & Company also produces machinery and equipment that’s used in construction and forestry. And the company is a major producer of diesel engines and heavy equipment drive trains, manufacturing components such as axles, transmissions and gearboxes.
While the company’s familiar green and yellow machinery is best known for farming, the reality is that Deere & Company is a leader when it comes to technologically advanced heavy machinery that’s essential in a wide range of industries.
The company’s stock has held up well this year, recovering more than 30% from March lows and keeping pace with the S&P 500 Index. The stock is now trading close to $160 a share, and there’s a good chance that DE stock could surpass its 52-week high of $181.99 per share.
A total of 11 Wall Street analysts have 12-month price targets on DE stock, with calls ranging from a low of $145 per share to a high of $182, which would be above the one year high point. The consensus rating of analysts is to “buy” DE stock.
Driving the optimism around DE stock is the company’s focus on developing precision agriculture offerings. Increasingly, Deere & Company is building technology driven autonomous equipment that could render much of today’s standard farm equipment obsolete in coming years. In fact, some analysts now refer to Deere & Company as a robotics stock.
The company behind the John Deere brand sees the Internet of Things (IoT) as a key driver of its future growth and is deploying sensors, onboard computers and telematics solutions that enable farmers to operate farming equipment with greater efficiency and precision than ever before.
Automated guidance technology enables farmers to collect and analyze data in real time to improve planting and seeding and enhance their crop yields. Farming today has gone high-tech and Deere & Company is leading the way.
Data from the company suggests there is plenty of demand for the increasingly high-tech machinery they are manufacturing. According to the company, half of the customers who are able to take up their precision technology solutions are doing so, and that number is growing steadily.
Manitowoc Company (MTW)
Nothing says progress quite like a city skyline dotted with telescopic and tower cranes. The iconic image of cranes positioned throughout a city signifies a construction boom and economic strength. And one of the companies responsible for most of those construction cranes is the Manitowoc Company.
Founded in 1902, the company, based in Milwaukee, Wisconsin manufactures telescopic and tower cranes, as well as lattice boom crawler cranes and boom trucks that are prominent in commercial construction projects.
MTW stock has recovered nearly 50% from its 52 week low of $7.24 in April, and, at $10.17 per share, still has a ways to go to regain its pre-Covid-19 52-week high of $18.55 a share. While the stock’s recovery has been measured, there is growing interest in MTW stock as a long-term play.
Going into the second quarter, 21 hedge funds took long positions in the company’s stock, an increase of 24% from the first quarter. About three-quarters (75.55%) of the stock is owned by institutional investors.
While the consensus view of nine analysts is to “hold” MTW stock, two of those analysts recently upgraded their ratings to “buy.” The high price target on the stock is $20 per share.
The bullish case for the Manitowoc Company is that it will recover with the broader U.S. economy and benefit from the resumption of construction projects and infrastructure renewal throughout the country. In May, the company said it was anticipating lower demand due to the pandemic and that it would be reducing production levels and lowering costs to weather the slowdown and better position to capitalize on economic reopening.
Investors should view MTW stock as a recovery play, and the share price should move higher as America reopens for business.
As of this writing, Joel Baglole did not hold any stock of the aforementioned companies.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.