Caterpillar Best Dow Stock Up 39% In 2016

Caterpillar (NYSE: CAT) is the best performing Dow (DJIA) stock of 2016, so far, up 38% to $94. The Dow has risen just over 14% over the same period to 19,934. The heavy industry manufacturer has had a poor year financially, so the reasons for the improvement are not obvious.

For the third quarter, the company announced:

Caterpillar Inc.  profit per share of $0.48 for the third quarter of 2016, a decrease from $0.94 per share in the third quarter of 2015. Excluding restructuring costs, profit per share was $0.85, down from $1.05 per share in the third quarter of 2015. Third-quarter 2016 sales and revenues of $9.2 billion were down 16 percent from $11.0 billion in the third quarter of 2015.
“Economic weakness throughout much of the world persists and, as a result, most of our end markets remain challenged. In North America, the market has an abundance of used construction equipment, rail customers have a substantial number of idle locomotives, and around the world there are a significant number of idle mining trucks,” said Caterpillar Chairman and Chief Executive Officer Doug Oberhelman. “However, there were a few bright spots this quarter. Both the construction industry and our machine market position improved in China. Most commodity prices, while low, seem to have stabilized. Parts sales have increased sequentially in each of the last two quarters. Our machine market position and quality remain at high levels and our work on Lean and restructuring are continuing to help us lower costs.

Clearly, a company in decline, the only promise of which has been cost cutting.

The answer to the riddle of the increase is Donald Trump, primarily. His broad statements about an infrastructure investment and weakening of regulations of oil and coal exploration have given Wall St. encouragement that Caterpillar will enjoy a windfall of business. Coupled with the slashing of its costs, revenue improvement should add to margins.

Caterpillar shares have stayed at a high level since the election. Real legislation which supports its sales could take the stock higher again next year.