Will Caterpillar Top the Dow in 2013?

As December comes to a close, 2013 is just around the corner, and it's a good time to look at the future prospects for the stocks you own. If you don't know where a company's headed in the next year and beyond, then it's impossible to make an informed decision about whether you should add the stock to your portfolio -- or sell it if you already own it.

Today, I'll look at Caterpillar (CAT 1.59%). Caterpillar has been a member of the Dow Jones Industrials (^DJI 0.40%) since 1991, but it's largely been stuck in neutral during 2012 as it tries to navigate a choppy economic environment both in the U.S. and abroad. With the fiscal cliff still looming, can Caterpillar make solid advances next year? Below, you'll see more about Caterpillar's prospects for 2013.

Stats on Caterpillar

Source: Yahoo Finance.

Will Caterpillar keep building in 2013?
Analysts are forecasting modest gains for Caterpillar in 2013, with the current price target translating to an advance of more than 10% for the stock. But as sales and earnings estimates show, the gains will have to come from multiple expansions, as the company seems pessimistic about its ability to keep growing fundamentally.

Caterpillar's recent struggles stem from the slowdown in global economic growth. Even powerhouses like China, which seemed immune to slowdowns in Europe and the U.S., have started to see slowing growth, and that's part of what weighed down Caterpillar shares in 2012. In particular, a slowdown in mining led Rio Tinto (RIO 0.68%) and other mining companies to slow down their production, leaving Caterpillar and rival Joy Global (JOY) to retrench after expanding capacity there in recent years. But with China spending more than $150 billion to bolster the nation's infrastructure, Caterpillar should get more than its fair share of that money to boost its business.

More broadly, improving economic conditions could bring a new bull run for Caterpillar. But the company will see more competition from General Electric (GE 0.68%) in 2013 as it starts to move forward with its foray into the mining-equipment business. With Caterpillar having gotten used to dominating its domestic competition, GE's entry will change the dynamics of the entire industry.

Unlike many short-term-focused players, Caterpillar has already given investors guidance as far out as 2015. Throughout the coming year, be sure to gauge how the company does compared to that somewhat cautionary guidance and look for signs of improvement that could point to better profit opportunities down the road.

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