Caterpillar (NYSE:CAT) stock has climbed 4.4% in 2019 as of close on January 24. The stock is still down 21% year over year.
Caterpillar is the world’s largest manufacturer of heavy equipment. The company is set to release its fourth-quarter results on January 28, and there are concerns over how the US-China trade war could impact results.
Caterpillar generated over 25% of its sales from Asia in the third quarter as demand in China saw a marked improvement.
Caterpillar is primed to play a big role in China’s "Made in 2025" program, which includes a huge investment in infrastructure spending.
China and the United States are reportedly working to resolve their trade dispute, but more tariffs could be forthcoming in March. A worsening of relations between the two countries could jeopardize Caterpillar’s sales in China.
Tariffs have also had a negative impact on Caterpillar’s bottom line.
Impact from tariffs on steel and other materials is projected to cost between $100 million and $200 million for the full fiscal year. These factors, and a broader weakening of domestic and global growth, will compound in 2019.
Caterpillar is expected to post earnings growth of less than 10% in 2019 compared to 70% in the prior year. This is also the result of the benefits of the late 2017 US tax reform package wearing off, at least when it comes to reported growth.
Caterpillar stock offers a solid 2.5% dividend yield, but economic headwinds and trade tensions remain a concern in early 2019. Investors should expect a solid Q4, but the stock looks more like a hold heading into February.
