Caterpillar (CAT 0.96%) is an economic bellwether, given its leadership in heavy machinery for key sectors like construction, mining, and energy. It's a cyclical stock, but you might be surprised by the kind of money its patient investors have made. Caterpillar stock has crushed the Dow Jones Industrial Average over time, whether you look back three, five, or 10 years.
The Dow Jones is an iconic index that's considered a barometer for the overall stock market's performance. It's comprised of 30 blue chip stocks, including Caterpillar.
If you'd invested $10,000 in Caterpillar stock five years ago, your money would be worth nearly $29,000, including dividends, as of this writing. In other words, you'd have nearly tripled your money in just five years. In comparison, an investment of $10,000 in the Dow Jones index would have been worth around $16,500 today.
CAT Total Return Level data by YCharts.
What's driving Caterpillar's rally
Caterpillar stock's rise wasn't a fluke. The company has consistently grown sales and cash flow over the years, increased its dividend for 30 straight years, and just announced an incremental share repurchase plan of $20 billion above its ongoing program.
2023 was a record year for Caterpillar, with revenue of $67.1 billion and earnings per share of $20.12 hitting all-time highs. Free cash flow (FCF) from key businesses of machinery, energy, and transportation (ME&T) of $10 billion was also a record and significantly higher than the company's target annual FCF range of $4 billion to $8 billion.
NYSE: CAT
Key Data Points
Buy and hold Caterpillar stock
Although Caterpillar expects flat sales for 2024, a strong first quarter encouraged management to raise its ME&T FCF target to $5 billion to $10 billion. Increased government spending will drive Caterpillar's key end markets, like construction.
Simultaneously, Caterpillar's strong balance sheet should be able to absorb shocks should the economy weaken. The company has proved its mettle through the toughest of times in its 98 years of existence and remains a solid stock to buy and hold for the long term.
