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Caterpillar Inc. was founded in 1925 following the merger of two California-based manufacturers of steam-powered tractors and harvesters. The newly formed company opened a manufacturing plant in Illinois, US – a location that would become its headquarters, until today. In the 1930s, Caterpillar is known to have perfected the use of diesel in their engines in place of gasoline, something that would become the standard in heavy-duty automobiles.
Caterpillar played a significant role during World War II, as the company developed diesel engines that powered the famous M4 tank. After the war, the Caterpillar brand became synonymous with bulldozers as countries embarked on the building and reconstruction of massive infrastructural projects.
From 1925, the company was known as The Caterpillar Tractor Company, and it adopted its current name, Caterpillar Inc., in 1986. As of November 2020, the company is now the world’s leading manufacturer and seller of earthmoving machinery used in construction, mining and forestry.
Caterpillar has over 110 local and overseas production plants, and it sells its products in over 180 countries worldwide. Caterpillar debuted on the NYSE on December 2nd, 1929, and it trades under the ticker symbol CAT. The stock is listed in the Industrials sector, under the Farm & Heavy Construction Machinery industry.
Caterpillar Stock History
Caterpillar has had 5 stock splits in its history with the last one being a 2-for-1 on June 14th 2005. The CAT stock has always mirrored the global infrastructure efforts. A sideways trend around the turn of the millennium saw the Caterpillar stock trade at around $20, but this paved the way for an uptrend that started towards the end of 2002.
The multiyear uptrend sent the stock to highs of above $85 by April 2008, after which the economic collapse at the time triggered a plunge to lows of circa $20 by March 2009. The stock, however, recovered and jumped to highs of circa $115 by Q1 2012. The resistance, however, proved to be too strong and a dip bottomed out at just below $60 in January 2016.
After that, the stock embarked on a strong rally that saw it print its all-time high at above $170 in January 2018. Caterpillar has paid quarterly dividends since 1933 and has a history of hiking cash payouts during good business times. Dividend stocks such as CAT are ideal for investors because they guarantee income even during negative markets.
How to Trade Caterpillar Stock
Here are some of the major factors to consider when trading the Caterpillar stock:
- Legislative and Taxation Issues
Caterpillar has operations in over 180 countries with over 2,100 dealer branches. This has always been hailed as a major strength of the company, but operations in different jurisdictions leave the company’s overall revenues and margins vulnerable to changes in legislative and taxation policies.
- Global Economic and Political Conditions
Caterpillar investors have witnessed first-hand the cyclical nature of the stock. The company benefits from good underlying global economic conditions because that is when companies and governments embark on ambitious infrastructural projects that will be fuelled by Caterpillar products. Political stability is also a positive fundamental for the Caterpillar company. Major projects in individual countries or across different jurisdictions are likely to happen when there is political harmony among various countries. For instance, a major headwind for the CAT stock since 2016 has been the ambitious intercontinental projects implemented by the Chinese government.
- Commodity Prices
Caterpillar has massive exposure to the prices of commodities such as oil and gold. Its mining machinery usually attracts demand when the prices of these commodities are high. That is when miners are encouraged to perform exploration and other mining activities. Since 2016, the prices of oil have been particularly suppressed, and this has been a massive headwind factor for the mining segment of Caterpillar. However, commodity prices have always been cyclical throughout history. Investors can always track their prices and determine the best times to buy, sell or hold the CAT stock.
- New Markets and New Products
Caterpillar is pretty much a mature company, with healthy growth and sustained profitability. But there is still room for growth in both developing and emerging markets where there is a huge drive towards urbanisation. This will require major infrastructure developments, such as roads, railways and airports, which will open up massive opportunities for Caterpillar.
There is also a great opportunity for Caterpillar to roll out new products that will meet the evolving needs of its customers. The company has invested heavily in research and development, especially in the digitisation of its predictive analytics. There is also a growing demand for automation technologies, and Caterpillar can take the lead in areas such as industrial automation. The company can also innovate on its products to make them more efficient as well as reduce their fuel consumption.
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Caterpillar Stock FAQ
- Why should I trade Caterpillar shares?
As one of the largest global manufacturers of construction and mining equipment Caterpillar is an excellent way to speculate on the global economy. During times of expansion the stock can trend strongly higher, and when the global economy weakens the downtrends are equally strong. This cyclical nature in the stock price means traders can often be presented with an emerging trend that will provide substantial profits. Few competing stocks are as exposed to the global economy as Caterpillar and it can be recommended as a watch list stock for any style of trading.
- Is Caterpillar the best industrial stock for trading?
The industrial sector is huge, and Caterpillar is a huge player within the sector. This be itself doesn’t make Caterpillar the best industrial stock for traders, but it does give the stock excellent liquidity, which is certainly in its favour. The stock also moves well within the global boom and bust industrial cycles, which at times will make it the best industrial stock for traders. This is particularly true at the beginning of recoveries, when mining and construction firms may place large orders for Caterpillar equipment, expanding the company’s revenues and profits and boosting the stock price rapidly over a short period of time.
- What’s the best strategy for trading Caterpillar shares?
Because Caterpillar shares are so cyclical in nature they can be traded in a number of ways, depending on where in an economic cycle we are. During strong economic growth, or strong economic contraction a trader may want to use a momentum strategy to capture the strong trending moves that Caterpillar is capable of. In more moderate times the stock can move sideways in consolidation, in which case looking for overbought and oversold levels within a range can be the most effective trading strategy for this stock.