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Buy Caterpillar stock for emerging market exposure

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There are domestic companies well positioned to derive significant business from emerging markets. One such company released a very positive earnings report today; coupled with a chart that may indicate a fair amount of upside potential, Caterpillar stock ( CAT , quote ) could be one to add to your portfolio.

[caption align="alignright" caption="Caterpillar stock is a great way to play emerging market growth"] [/caption]

Caterpillar is a manufacturer of mining and construction equipment as well as industrial gas turbines and diesel and natural gas engines. Headquartered in Peoria, Illinois, it is as American a company as you can find. And it is able to compete successfully on the world stage despite having most of its manufacturing capabilities in the US.

CAT has been experiencing strong international growth and through acquisition is positioned as a leading global mining original equipment manufacturer. Caterpillar has definite expansion plans in emerging markets and the company will benefit from increased domestic and international infrastructure spending. Caterpillar stock has tremendous exposure to emerging markets, particularly China and India.

Caterpillar grew its revenue 41% last year and 36% the prior two years. Earlier Wednesday the company raised its 2012 earnings forecast to $9.60 per share from $9.50 per share. Caterpillar's second-quarter profit increased 67% thanks to growing demand for its construction and mining equipment.

But Caterpillar stock until today has not been performing well. It is down more than 30% since its 2012 peak of over $115.00 per share in March. Since the beginning of June it has also been underperforming the S&P. This is due to the ongoing slowdown in developed and emerging markets -- and is also where the opportunity may lay.

A look at the longer term chart of Caterpillar stock shows an interesting formation. A double top seems to have been established earlier this year when the stock peaked at just over $115.00 per share, slightly exceeding the earlier peak in May 2011. Astute technical traders would have identified this phenomenon in March and liquidated their long position and/or established a short position.

Having done so would have successfully averted significant losses and, if short, provided ample profitability. But Caterpillar stock may have bottomed for now, with support in the $75 - $80 range. With good earnings and a very positive outlook from Wall Street (the overall outlook from analysts sampled by Starmine is bullish) this very well could be both a short and long term buying opportunity. Although additional weakness from China could certainly impact CAT's bottom line, it has a 2.55% dividend yield and quite frankly a great long term outlook.

Consider Caterpillar stock for your emerging market portfolio. It is a domestic blue chip stalwart well positioned to benefit from a still promising future for emerging markets.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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