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2011: The Year Caterpillar Learned to Crawl

In these waning days of 2011, there's a chill in the air and snow in the forecast. What better time of year to curl up by the fire and ponder: What went wrong with the stocks you picked back in January? What went right? And should you keep these stocks in your portfolio, or go out and find something new?

That's what we aim to do today, as we flip back the calendar, and consider the year that was at Caterpillar (NYSE: CAT  ) .

A few Foolish facts about Caterpillar

Year-to-Date Stock Return (5.5%)
P/E 13.9
Dividend Yield 2.1%
1-Year Revenue Growth 31.5%
1-Year Profit Growth 201.7%
CAPS Rating (out of 5) ****

Source: Motley Fool CAPS.

What happened at Caterpillar this year?
What a difference a year makes. Back in the waning hours of 2010, shareholders of Caterpillar were sitting pretty as butterflies, lounging in cocoons made of money, quietly counting piles of even more money. Their stock had risen 64% in a year, and going into 2011, signs looked propitious for another year of gangbusters growth...

So much for that theory. Instead of repeating its 2010 feat, Caterpillar gifted its shareholders a disappointing 5.5% loss of capital in 2011 -- less than the 1% gains posted elsewhere on the Dow Jones Industrial Index. So what went wrong?

Actually, nothing went wrong. Not with Caterpillar's business, at least. To the contrary, Cat leapt right outta the bag early this year, and hasn't stopped running since. Sales growth in the firm's most recent quarter far exceeds what we've seen at fellow industrialists like Textron (NYSE: TXT  ) and United Technologies (NYSE: UTX  ) . It's also eclipsed the results we're seeing at rivals Deere (NYSE: DE  ) , CNH Global (NYSE: CNH  ) , and Kubota (NYSE: KUB  ) by solid margins.

Illustrative of the company's success was the earnings report Cat released back in May, when the manufacturer wowed Wall Street with a report of more than 400% improvement in quarterly profits, and promised more of the same going forward, since "the outlook for 2011 has improved." The company promptly upped its guidance for the year from $6 per share in profit, to $6.25 to $6.75 -- and Wall Street went one better, guessing Caterpillar would ultimately earn $6.79 when all's said and done.

Patience, Caterpillar
And this, in a nutshell, has been Cat's problem in 2011: Quarter after quarter, it's exceeded expectations. So much so that maybe some folks are taking its success for granted. Result: It's getting harder and harder to impress investors. Harder and harder to make the stock go higher.

But so what? As I explained in a column last month, long-term investors can still profit from Cat in 2012, if they're patient. The firm's projected 23% long-term growth rate is plenty fast to justify its midteens valuation. All it really needs to do, it seems to me, is exactly what it's done all year long in 2011: Make promises. Fulfill or exceed them. Lather, rinse, and repeat.

I think Caterpillar's got what it takes to succeed in the new year (I've staked my reputation on it, recommending the stock publicly on Motley Fool CAPS). But here at The Motley Fool, our all-star analysts think they've found a stock that can do even better in the new year. Find out which company our experts prefer in our new free report: "The Motley Fool's Top Stock for 2012." Thousands have already requested access and it'll only be available for a limited time. Simply click here -- it's free.

Fool contributor Rich Smith holds no position in any company mentioned above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 352 out of more than 180,000 members. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Rich Smith

I like things that go "boom." Sonic or otherwise, that means I tend to gravitate towards defense and aerospace stocks. But to tell the truth, over the course of a dozen years writing for The Motley Fool, I have covered -- and continue to cover -- everything from retailers to consumer goods stocks, and from tech to banks to insurers as well. Follow me on Twitter or Facebook for the most important developments in defense & aerospace news, and other great stories besides.

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