Shares of Caterpillar Inc. and Manitowoc Hit 52-Week Highs: Has the Rally Just Begun?

How high can these stocks fly? Find out.

Feb 26, 2014 at 2:46PM

Construction equipment stocks are on a roll. Caterpillar (NYSE:CAT) hit its 52-week high on Monday and Manitowoc (NYSE:MTW) shares zoomed to levels not seen in nearly five years. There were no company-specific announcements or any major economic news; the excitement actually spilled over from last week after Deutsche Bank turned bullish on both stocks and sent them soaring.

But wait, it's a lot more than an analyst upgrade. Good news seems to be pouring in from several sides for Caterpillar and Manitowoc, and investors just can't wait to get a piece of the action. But is the momentum here to stay, or will the two stocks give it all up before it is fully realized? A look at the factors that are bidding the shares up may give you an answer.

On solid ground
The recent uptick in construction activity in the U.S., especially nonresidential construction, is the biggest factor that's fueling optimism in both Caterpillar and Manitowoc. Caterpillar gets about a third of its revenue, and Manitowoc more than half its sales, from that region. 


A strong U.S. market lifts Manitowoc crane sales. Image source: Manitowoc

Caterpillar confirmed the strength in domestic markets last week when it released its retail machine sales data: North America was the only market where the company reported a percentage improvement in sales for the quarter ended January. Sales from every other geographic region fell by double-digit percentages. But the market is probably expecting things to turn around.

Hopeful signs, but...
Economic data released earlier this month showed that the six biggest eurozone economies expanded during the quarter through December 2013 -- something we haven't seen in nearly three years. The eurozone crisis has been a major drag on Caterpillar's and Manitowoc's sales for several quarters, so any sign of improvement bodes well. The Europe, Africa, and Middle East region contributes nearly a quarter to revenues of both companies.

In another development last week, China reported record imports of coal and iron ore for the month of January. Caterpillar investors, in particular, got excited since the company is heavily exposed to the mining industry and is betting big on the Chinese market for future growth.

Unfortunately, it may be too early to rejoice. Europe isn't out of the woods yet, and higher ore imports from China do not necessarily mean greater mining activity. In fact, January's manufacturing report out of China was a bummer. Persistent challenging business conditions in the nation even compelled Manitowoc to offload its 50% stake last month in a joint venture set up in 2008 with a Chinese company, after having already exited another venture late last year.

In other words, you may have to wait some more quarters before these markets revive. And until then, neither Caterpillar nor Manitowoc can grow their top and bottom lines as you would want to see.

So, what is Deutsche Bank betting on?
Why did Deutsche Bank initiate coverage on the two stocks last week, rating Manitowoc a hold and Caterpillar a buy with a price target of $122 a share?


Strong power systems sales isn't enough for Cat.

For Caterpillar, Deutsche opines that investors shouldn't overlook the growth potential in the company's construction equipment and power-systems businesses even as the mining sector remains weak. That makes sense, but investors should also remember that mining has traditionally been Caterpillar's highest-margin business.

That explains why the company suffered a huge blow on its bottom line last year despite good demand for its construction and power systems machines. Moreover, while Caterpillar expects revenue from the two businesses to improve 5% each in 2014, a projected 10% drop in its mining division could mar growth.

For Manitowoc, a sluggish mining market may not be a major issue, but it runs a parallel business of equipment that caters to the foodservice industry which hasn't been doing too well lately. But the company sprang a surprise last quarter when its food-service equipment division reported strong growth in revenue as well as margins. Manitowoc also sounded optimistic about the business for the rest of the year, which played a huge role in driving its shares up to a multiyear high.

Where are the two stocks headed?
After a super run in 2013, I don't see a reason why Manitowoc shares shouldn't continue to head higher this year. But at 27 times earnings, the stock currently trades at a wide premium compared to most peers, so upside may be limited.

Caterpillar shares, on the other hand, are slowly getting back to their feet after facing a rough 2013. While headwinds remain, the company may have already left the worst behind. The stock may have a bumpy ride ahead, but at 16 times earnings, it's certainly cheap enough to excite long-term investors.

Caterpillar may tank if the market crashes; these stocks will keep your capital safe
One of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks as a group handily outperform their non-dividend paying brethren. The reasons for this are too numerous to list here, but you can rest assured that it's true. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now. Make sure you get those names before the market starts losing its grip. 


Neha Chamaria has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers