For many investors, seeking exposure to North American infrastructure growth associated with various spending plans announced by the Trump administration and Trudeau’s cabinet, companies like Caterpillar (NYSE:CAT) may come to mind. In this article, I’m going to discuss why I believe there are much better options out there for investors with this goal in mind.
Caterpillar is certainly a company that benefits from infrastructure growth and broad economic outperformance, given the heavy stake the company has in heavy machinery involved in such massive infrastructure plays.
That said, the overall operations of Caterpillar are pretty well-diversified, with mining, forestry, and other heavy industrial market segments served by Caterpillar machines. Infrastructure alone does not tell the whole story - one must look at the company’s core business first and assess if now is the right time to jump in.
From that point of view, I would be cautious with a name like Caterpillar for a few reasons.
First, it is unclear as to just how long the prolonged period of economic performance we’ve enjoyed will last, and in that regard, the current valuation of the machinery manufacturer may have gotten ahead of itself.
Second, a company like Caterpillar does not have a recurring source of revenue, meaning Caterpillar will need to continue to search for, bid on, and close major deals, providing additional uncertainty to investors in a competitive environment.
Third, the company is heavily exposed to the mining and forestry sectors, which are sectors I’m not bullish on in the near to medium term.
Invest wisely, my friends.
