Over the past year, the S&P 500 has seen an impressive 20.5 percent return so far, but not every industry has been affected equally by this rise.
Caterpillar Earnings
One industrial giant has been hit, struggling to gain even just 3.5 percent so far in the year. Caterpillar (NYSE: CAT) saw its shares plunge on Wednesday after it reported disappointing Q2 earnings.
Plagued by ongoing tariffs, rising material costs, as well as sinking demand in China, the once-dominant American industrial manufacturer has cut its full-year earnings guidance.
Now, one analyst has gone on to say that it will be difficult for the company ever to regain momentum and that the good old days are over for the company.
On Thursday, Neil Frohnapple, an analyst at Buckingham Research, cut his rating on Caterpillar from a “buy” to a “neutral” while also lowering his target price from $162 to $140. While he says that some of Caterpillar’s end market could grow in the near future, it doesn’t change the fact that the company is “struggling to identify a catalyst to drive the stock significantly higher from current levels in the near term.” Now that Caterpillar has missed earnings targets for two out of the last three quarters, Frohnapple warns that “the probability of lower earnings growth in 2020 (or even a decline) is rising as trade uncertainty and global growth concerns persist.”
For investors who are adamant about investing in the industrial sector, he says there are more attractive alternatives then Caterpillar. One company that the analyst picks over Caterpillar is United Rentals (NYSE: URI), which he gives a “buy” rating for.
U.S. manufacturers as a group have been hit particularly hard. The HIS Markit U.S. Manufacturing Purchasing Managers’ Index, which tracks the economic health of U.S. manufacturers, declined by 50 points in July, hitting its lowest level in over a decade.
These weak numbers potentially suggest that another Caterpillar rival, Deere, could lose most of its gains and plummet down to Caterpillars price range.
Shares are Caterpillar are up somewhat today, having risen by 2.1 percent on Thursday. However, the stock has stayed relatively the same over the past six months, giving back almost all of it’s previously seen gains in the first quarter of 2019.
Even over a five-year time frame, the stock has gained around 35 percent, which is actually roughly in line with the S&P 500 over the same time frame. Interestingly enough, United Rentals also has seen performance roughly consistent with Caterpillar over a six-month and five-year time frame.
Regardless, there are a number of markets that have been doing very well over the past six months, so there isn’t much reason why investors would flock to the struggling industrial sector over others.
