After a 51% rise in the stock price over the last year, Caterpillar(NYSE: CAT) investors have had a great year. However, management's guidance and Wall Street's analyst consensus suggest it may be about to pass a cyclical peak in earnings and cash flow.
Wall Street estimates and cyclical upsides
For example, the Wall Street consensus calls for Caterpillar's sales to grow by less than 1% in 2024 and its earnings per share to be $21.27 compared to $21.21 in 2023. Those kinds of estimates usually spell trouble for a cyclical stock because investors often look to jump off board when the company's earnings momentum stalls.
That said, a Truist Financial analyst recently initiated coverage of the stock and set a $390 price target on it. That suggests the stock has a 14%-plus upside over the next 12 months or so if you believe the analyst's report. The analyst argues that infrastructure spending (led by the $1.2 trillion U.S. Infrastructure Investment and Jobs Act) as well as the ongoing transition to clean energy will boost the stock's earnings potential. Caterpillar's equipment plays a key role in the latter through mining machinery for metals like copper, which are essential for electric vehicles and renewable energy. In addition, its construction machinery helps build the infrastructure necessary to connect renewable energy to the grid.
Caterpillar has potential to beat estimates
As such, Caterpillar has the potential to beat Wall Street estimates through 2024 and cause the market to upgrade earnings estimates. This is a powerful argument, and in addition to the points raised above, lower interest rates will boost Caterpillar's sales prospects. That said, it's not the only cyclical stock out there, and there may be better ways to invest on a contrarian view than buying a stock in a company whose management has prepared investors for slowing growth in 2024.
Should you invest $1,000 in Caterpillar right now?
Before you buy stock in Caterpillar, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Caterpillar wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
*Stock Advisor returns as of March 11, 2024
Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Truist Financial. The Motley Fool has a disclosure policy.
