The IBD 50 Stocks To Watch choice for today is Caterpillar, which is in a flat base and approaching a buy point and all-time high of 293.88. The growth stock gapped up after earnings on Aug. 1 and has been consolidating since then.
Volume was the highest this year on the earnings gap-up, as seen on IBD MarketSmith charts.
The base so far has formed entirely above the 50-day moving average. CAT stock broke out of an earlier cup with handle on July 11. The stock has a beta of 0.95 and has done slightly better than the S&P 500 with its 17% gain so far this year; the S&P 500 is up 16%.
Part of the growth had to do with the surge in residential building that sent homebuilder stocks flying earlier this year. The infrastructure spending bill and the Inflation Reduction Act are also powerful tailwinds for Caterpillar's heavy-machinery business.
With a perfect Composite Rating of 99 and an EPS Rating of 93, Caterpillar is clearly a market leader. The Relative Strength Rating of 92 is also solid. CAT also leads the construction and mining machinery group, which holds 29th place among IBD's 197 industry groups.
Growth Stock Leads Construction Gear Group
Sales and earnings over the past five quarters show steady or even accelerating growth.
Second-quarter revenue of $17.3 billion showed 22% growth, thanks to higher sales volume and better pricing of products. Earnings per share of $5.55 saw an impressive 75% growth, up from EPS gains of 43% and 70% the previous quarters.
The company repurchased $1.4 billion of common stock during the second quarter and paid a dividend of $1.30 cents on Aug. 18 to shareholders of record as of July 20.
Caterpillar started in 1925 — making it almost 100 years old. The company boasts over 20 brands, including CAT, Anchor, AsiaTrak and MaK.
Caterpillar is a leader in construction and mining equipment and operates two segments. The machinery, energy and transportation business makes off-highway diesel and gas engines and turbines, and diesel-electric trains. Its financial segment provides financing for the purchase and lease of Caterpillar and other products.
Mutual funds own 35% of shares outstanding. Funds owning Caterpillar include the MFS Growth Fund (MFEGX) and the Fidelity Contrafund (FCNTX). Exchange traded funds that hold the growth stock include Industrial Select Sector S&P 500 ETF and the Fidelity MSCI Industrial Index ETF.
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