Though I’m a growth investor at heart, I don’t dismiss other opportunities which may present themselves. For example, heavy machinery maker Caterpillar (CAT) could hardly be called a growth name, but it appears intriguing lately.
That’s especially true as industrials and techs have replaced many of the retailers and consumer-oriented big caps that have shown leadership in recent months.
Last week, the company reported better-than-expected second quarter earnings, which gave the stock a lift in heavy volume. Take a look at this weekly chart, to see the volume spike.
The company’s earnings got a lot of attention last week, because it raised hope that the economy may not be in the toilet as much as many believe.
In addition to beating second-quarter expectations, Caterpillar raised its full-year earnings guidance. Asia was its fastest-growing region (no real surprise there), but it also said North American sales were growing, which made U.S. investors feel a bit warm and fuzzy about backhoes and bulldozers.
Caterpillar’s profit was up 51% in the quarter. Earnings have turned around recently after declines in ’08 and ’09. Sales grew 31% after declining in the previous five quarters.
And Wall Street is optimistic about Caterpillar’s prospects, with an estimate of 84% profit growth this year and 41% in 2011.
Another good sign: Mutual fund ownership climbed in the most recent quarter, after falling prior to that. Fund ownership is among the signs of institutional support that often precedes a big price move. If mutual funds, pension funds, hedge funds and other professional investors are buying into a stock, that’s the fuel to send a price higher.
With a market cap of $44 billion and more than 10 million shares changing hands each day, Caterpillar is unlikely to show the kind of explosive growth that you occasionally see in a much smaller group-mate, such as Bucyrus International (BUCY).
But there’s definitely a place in your portfolio for bigger caps with good fundamentals and continued growth prospects.
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The information in this article is provided for informational purposes only and should not be considered direct investment advice. No guarantee is made that the strategies or securities discussed herein will be profitable. The information provided reflects the views of the author as of a particular time and are subject to change at any time without notice.
