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Caterpillar Well-Positioned Amid Infrastructure Boom

The undervalued, wide-moat firm presents an excellent investment opportunity today.


Scott Pope: As emerging economies become more urbanized and developed economies replace aging infrastructure, the demand for construction equipment continues to increase. We currently feel wide-moat Caterpillar is optimally positioned to benefit from this infrastructure boom and is significantly undervalued. In recent quarters, Caterpillar has done a remarkable job increasing its profitability. By reducing 25% of its overall manufacturing floor space and trimming headcount by approximately 14%, Caterpillar has emerged a leaner, stronger organization.

Our recent research suggests Caterpillar offers significant upside potential. While the North American construction segment is experiencing significant tailwinds, many of Caterpillar's business segments are well below their midcycle peaks. Currently, its resource industries segment is generating less than half of the revenue it was in 2012. Caterpillar's rail division has also been particularly depressed in recent years suggesting future revenue improvements are likely.

Scott Pope does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.